The Property Insurance market is currently in flux and rates are rising in all sectors. In this update, we will attempt to explain the reasoning behind the market shift and provide some helpful tips for navigating a successful Property Insurance Program.
The Property Insurance market rating environment has experienced a gradual deterioration over the past 12-15 years, a change that probably started post KRW (Hurricanes Katrina, Rita and Wilma 2005). The Property market saw an immediate but short-lived spike in insurance rates, primarily in CAT (catastrophe) exposed risks. However, shortly after this initial spike, rates started to decline and capacity for Property Risks gradually increased. In addition to this, policy terms and conditions began to broaden and the following competitive spiral took shape:
Factors Contributing to the Current Rate Environment
Rates started to decline on most risks and level off on CAT exposed accounts within a few years of KRW. They then began a steep and steady decline.
Deductibles started to decline to levels not previously seen in the market, such as 1%, 2% and 3% deductibles in Tier 1 and 2 counties for Wind-related risks.
Insurance To Value (properly valued property), which, if not reported correctly and undervalued, accounts for billions in annual premium leakage according to a leading industry study, began to become a negotiating tool to the detriment of underwriters. Properties were not being priced for their actual valuation. Unfortunately for the underwriting community, the terms and conditions were so broad that any loss to an undervalued property contained no penalty or deterrent resulting from this undervaluation, thereby exacerbating the rate erosion issue.
Capacity is not necessarily an issue of availability today, however; it is coming at an increased premium and underwriters are being extremely selective in deploying their capacity to the “best” risks.
Underwriters need to make an Underwriting profit
In an ideal rate environment, underwriters are pricing for their attritional losses while funding for catastrophic events. In the above referenced environment, there is not enough rate to achieve either of these objectives and obligations, let alone both. This has led CUOs (Chief Underwriting Officers) and senior leaders within the underwriting community to put an emphasis on underwriting profitability at the expense of revenue growth. What we are seeing is a firm stance on rate needs, tighter terms and conditions and a renewed strategy to achieve valuation adequacy. Underwriters are walking away from risks where they are unable to achieve their rate, terms, and conditions.
Successful Property Insurance Program analysis – Human element management of risk.
85% of all Property losses, excluding weather-related losses, are caused by human element factors, says a study by a leading Global Insurance Underwriter. It is critical to be prepared and provide the underwriters with as many risk mitigation factors as possible to place your risk as “best in class” and a desirable risk for an underwriter. We believe that a strong risk management and safety program with detailed analysis of maintenance, protection, procedures and post-loss analysis and mitigation will lead to a desirable result—and not a “shock” to the client’s bottom line. Human Element management must be a key risk management strategy for all clients. Clients may also consider more risk acceptance in situations where sound practices and procedures are in place to offset any rate increase.
Our Brokerage Team is a powerhouse when it comes to large complex property risks – an area where we’ve identified an increased need. This need also includes manufacturing, construction, real estate, entertainment, and more. Andy Fellowes has underwritten some of the largest bridge projects in the United States – a history that gives the team a comprehensive and far-reaching ability in terms of underwriting heavy manufacturing, underground mining, and coastal properties. Interested in learning more? You can reach Andy directly at firstname.lastname@example.org.