Safeguarding owner profits in the property market: Navigating risks and strategies

In today’s property market, protecting client assets and the revenue stream that can come with them requires a strategic approach that addresses evolving challenges and opportunities. Over the past few years, the property market has witnessed significant shifts, including price surges, coverage gaps and increased exposure to catastrophic weather events. With a recovery now in sight as insurers once again realize profitability and favorable combined ratios for property, it is still crucial to apply the lessons learned over the past five years to maximize the efficiency of your property insurance program.

Actual insured losses from natural catastrophe events in the United States have averaged $101 billion over the past five years — a significant increase compared to previous periods, which averaged $70 billion. The rise in “secondary peril” related events, severe convective storms and wildfires in particular, underscores the urgency of being prepared for potential risks and disruptions. In 2023, the U.S. experienced 28 weather and climate related disasters that each resulted in insured losses of $1 billion or more.

Key factors for success

To safeguard investments and ensure long-term profitability, property owners and those who work with them must take forward-looking measures. Consider the following key factors:

1. Be proactive about risk assessment. Begin by identifying and quantifying property risks early and regularly. Use analytics and modeling to accurately assess risks and understand potential exposures, including natural catastrophes such as coastal wind, wildfires, floods, earthquakes and severe convective storms. Implement strategies such as:

• Evaluating building envelope integrity; inspecting for damage and considering age and materials used.
• Surveying the property's defensible space; checking for fire and other hazards.
• Performing a detailed location analysis that considers weather risks.
• Selecting damage-limiting construction methods.
• Ensuring equipment protection to mitigate these risks by maintaining any tools or structures needed.
• Having a robust disaster recovery and business continuity plan in place.

2. Champion risk management. Demonstrate a proactive and comprehensive approach to risk management. Use the risk assessment of the infrastructure to build out hazard reduction processes, active and passive protection measures, and training programs. A collaborative approach not only strengthens your risk profile but also enhances trust and transparency with carriers. Steer clear of treating partnerships as mere commodities; embrace transparency, using reliable data to make informed decisions.

3. Look for ways to boost your organization’s appeal. Explore methods to enhance the attractiveness of your insurance program to carrier groups through a focus on comprehensive analytics and modeling using case studies and clear policyholder results. Develop and execute strategies that strengthen your risk profile to the underwriting community, emphasizing the use of favorable risk data.

Alternative risk transfer explained

In lieu of traditional insurance — which can still be difficult to obtain for particular perils and exposures — property owners and those who work with them should continue to consider alternative risk transfer options, including but not limited to captive utilization, parametrics and structured solutions. Each option offers varying levels of risk assumption and cost-effectiveness, allowing you to tailor the risk management strategy to the organization’s specific needs and risk tolerance.

Some examples of alternatives are as follows:

• Self-insurance: With this alternative, businesses set aside funds to cover potential losses instead of only purchasing traditional insurance, providing more control over claims and costs. Self-insurance can be advantageous for well-capitalized businesses with stable cash flow.

• Captive insurance: An organization might establish their own insurance company (or use a cell in a “rent a captive” to cover specific risks, providing greater flexibility and potential financial benefits. Captive insurance is ideal for businesses with unique risk exposures seeking customized coverage and potential tax advantages.

• Parametric products: Peril-specific products allow for a very customized approach to covering an exposure, with pre-set payment triggers in place. These products offer a fast payout (often within less than 30 days of loss) and include the ability to cover financial exposures not picked up by a traditional property insurance policy.

• Structured solutions: Also a highly customizable product that allows for spreading risk over more than a single policy period, often with the ability to include a profit-sharing component to the contract.

Safeguarding profits for tomorrow and beyond

Protecting profits in the property market requires a multifaceted approach that addresses risks, fosters partnerships and explores innovative risk transfer options. By proactively assessing and mitigating risks, collaborating with carriers and considering alternative risk transfer strategies, organizations can enhance their resilience, minimize financial impacts and ensure business continuity even in the face of unforeseen challenges.

Stay ahead of the curve, quantify risks early and implement effective strategies for policyholders to navigate the evolving property landscape successfully. Protecting profits is not just about risk management but also about seizing opportunities and adapting to market dynamics for long-term success.

Blake Giannisis is the North American property practice leader at HUB International. Contact him at [email protected].

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