By: Derick Stitik

After years of soft pricing in the property insurance market, we’ve entered the hardest market since 2004 to 2005. The current conditions – including rising rates and reduced carrier capacity – will likely continue into the foreseeable future. To succeed in this market, your submissions need to be as strong as possible.

Natural Disasters Cause Staggering Losses

The U.S. has experienced wildfires in the West, hurricanes in the South, and convective storms in the Midwest. These weather and climate events have led to considerable losses. Munich Re says insured losses in 2022 came to around $120 billion. Hurricane Ian was the costliest natural disaster, causing an estimated $60 billion in insured losses.

Convective storms don’t always receive as much news attention as wildfires or hurricanes, but they can also cause severe damage. RMS says severe convective storms (involving lightning and thunder, and often wind, heavy rain and hail) cause around $17 billion in insured losses every year.

Added together, these costly disasters have caused reinsurance prices to surge, even with retentions set at higher limits. Business Insurance says U.S. property catastrophe reinsurance rates were 40% to 60% higher for January 1, 2023, while renewals and capacity was down. These increases are impacting carriers and their ability to underwrite natural disaster risks.

Construction Costs Have Surged

Higher construction costs are another critical reason for the current hardening of the property insurance market. In a study from the Council of Insurance Agents and Brokers (CIAB), 93% of respondents cited inflation as a factor impacting key market trends and 73% mentioned that rising costs were impacting property rates in particular.

Average inflation rates have been high enough to impact consumers, but price hikes for building materials have been especially steep. The National Association of Realtors says new home costs have increased by 42% over a three-year period.

Coverage amounts have not kept pace with these increases. Issues regarding insurance to value (which refers to the cost to rebuild) have led to significant losses. According to Risk & Insurance, a study of property appraisals from Kroll found that 68% of buildings valued in 2020 to 2021 were underinsured by at least 25%. This has become a major problem for reinsurers and is impacting the market.

The Impact on the Property Insurance Market

According to the Triple-I Blog, the property and casualty insurance market posted an underwriting loss for 2022. The combined ratio is estimated at 105.8 which is a 6.3-point worsening from 2021. This means claims and expenses paid were greater than the premiums collected. aced with these underwriting losses, insurers have had to raise rates and tighten underwriting standards.

CIAB says commercial property insurance rates were up 16% in the fourth quarter of 2022. This was the steepest rate increase of any insurance type – even cyber insurance only increased by 15%. In addition to higher premiums, respondents are seeing higher deductibles and more restrictive terms on property risks. Carriers are also mandating increased building values in some cases, such as when the values have not increased recently.

A Next Phase of Telehealth

The current property insurance market is challenging – to put it mildly. Carriers are receiving a surge in applications from people looking for rate relief that generally is unavailable.

You need to prepare your clients for the reality of the current market conditions by focusing on the three Es: Education, Evaluation, and Examples.

• Educate – Provide information to your clients to ensure they understand the changing market conditions. Don’t wait until renewal – stay in constant contact by emailing them information and through phones calls.
• Evaluate – Since insurers are exercising increased underwriting scrutiny, you need access to your clients’ information to evaluate current risks and policies.
• Examples – Share examples of similar risks and current pricing to ensure your clients know what to expect. Without these examples, they may think underwriters are singling them out or offering them a particularly bad deal.

Prepare Your Submissions

Demand for property coverage is exceeding supply. For your submissions to have a chance, they need to be in tip-top shape. All property insurance submissions must include the ACORD application, the SOV in Excel format, and five-year loss runs. In addition to this documentation, submissions for wind deductible buybacks must have a copy of the underlying policy and the direction of what deductible you are trying to buy down to.

For best results, the body of the email should include:

• Information about whether you control the account or are trying to win it.
• The markets you have approached. If another broker is involved, provide a marketing list to prevent  duplicating efforts.
• Whether the incumbent insurer is offering renewal – if not, why.
• The target premium.
• Any recent building improvements, general maintenance programs, or completion of any claims work.
• Commentary that will make the client stand out in the sea of applications. Writing a compelling story is your chance to make your client shine. For example, you could describe the client’s efforts to control losses.

Looking Ahead to 2023 and Beyond

As the economic concerns, political tension, and large losses that contributed to the current market are still in place, it seems likely the hard market conditions will continue through 2023 and possibly into 2024. Eventually, the property insurance market will improve, but, until then, talk to your larger clients about a loss limit and whether a higher deductible could reduce some of the sticker shock.

Do you need help securing property insurance for your clients? Socius provides access to new markets and underwriting advocacy. Contact us for assistance.

Socius helps brokers and their clients navigate the evolving insurance climate. Contact us for creative problem solving, access to new markets and underwriting advocacy.

Derick Stitik

Senior Vice President, Property Practice Leader

email: dstitik@sociusinsurance.com

mobile: (941) 735-2444

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