Commercial property owners stressed in a challenging P/C market

By Mark Englert

Commercial property owners are stressed by rate increases, capacity restrictions and other factors as they navigate the renewal process. As we approach the second half of 2023, businesses must address these challenges head on, proactively managing their insurance renewals to ensure they can negotiate the best possible outcomes.

Catastrophic (CAT) weather events, such as Hurricane Ian, greatly impacted commercial property insurance at the start of 2023, a trend that is expected to continue. Because of this volatility, The Alera Group released a supplement to its 2023 Property and Casualty Market Outlook by providing a March 2023 Commercial Property Update to take into account the $75 billion in insured losses resulting from Ian.

Trends and events setting the tone for commercial property insurance

The challenges insurers faced when negotiating reinsurance contracts in early 2023 set the stage for a hard year to come. Rates increased, as did attachment points for coverage and retention levels insurers were required to assume. Meanwhile, reinsurers tightened terms and conditions related to natural disasters, terrorism, strikes, riots, civil commotion, and non-damage business interruption.

Direct impacts

Today, commercial property owners and managers are simultaneously confronting cost increases and coverage decreases. Outside of catastrophe-prone areas, cost increases are hovering between 5% and 15%. Inside those CAT-prone areas, rates have spiked even higher, ranging between 25% and 150%!

One significant driver of increasing cost is the widening gap between reinsurance supply and demand. As of early 2023, this gap ballooned to an estimated $60 billion, three times what it was the previous fall. Faced with record losses and reduced availability of reinsurance, insurers are scaling back the coverages they offer. This is forcing some businesses to seek coverage from multiple carriers to meet their policy limits.

Many market experts anticipate that similar headwinds will continue for property owners through mid-year renewals. In fact, Standard & Poor's forecasts that the hard market, characterized by limited supply and increased demand, will persist throughout 2023.

Act now ahead of renewal

Given the challenges insurers face – including a continued shortage of staff - property owners and managers must be more proactive than ever about their renewal processes. Starting at least 90-120 days in advance is ideal. Underwriters are stretched thin with a deluge of submissions, so getting started early is wise and ensures a more thorough review and favorable outcome. Other strategies for success in this market include:

Stay updated on building replacement values: Knowing the accurate replacement values of your properties is crucial. With rising costs, insurers will be closely scrutinizing coverage limits. Prioritize this information and work with your broker to ensure it is up to date.
Prepare for hard decisions: Rising costs and reduced reinsurance availability may necessitate tough decisions about coverage limits, deductibles, and policy terms. Be prepared to make hard choices to ensure your organization has the appropriate level of coverage while managing costs effectively.
Make it easy for insurers to say yes: Building a compelling case for why insurers should invest in your organization is essential. Work with your broker to build a complete submission that highlights your risk management strategies, loss history, and other factors that make your organization an attractive risk. Consider arranging face-to-face or video meetings with insurers to strengthen your relationship and enhance your submission.

The market conditions in 2023 are challenging, but there are steps you can take to ensure a more favorable outcome for your properties. Start early, be prepared to make hard, but well-thought-out choices, and work closely with brokers and insurers.

Mark Englert is executive vice president and national property and casualty leader at Alera Group. He may be contacted at [email protected].