A Hardening Market
The commercial property market dynamic today is driven by two powerful and conflicting forces: large catastrophe losses and excess capital.
Just 2 years after the property/casualty insurance market experienced historical catastrophe losses, with 5 of the 15 costliest catastrophic events occurring in the same timeframe, overall property rates began to slowly rise in 2018, with the rate of increase growing at an exponential pace into early 2019. Industry leaders have voiced expectations of rate increases, with variability still depending on the coverage line, program structure, loss history, and market appetite. Premium challenges are likely to persist in specific coverage lines such as property-exposed businesses in wind and flood-prone areas and habitational risks.
While P&C market surplus will likely continue to grow, fueled by a booming economy, resulting in growth in net written premiums and ever-expanding levels of alternative capital, Insurance companies are re-evaluating how to best deploy their capital in order to manage and mitigate aggregations in catastrophically exposed areas. This shift in strategy has resulted in hardening and, in some cases, a shrinking market.
The UIC Difference
In the past decade, one of the most effective risk transference models for large property risk was to ensure company real estate portfolios through Risk Purchasing Group programs. Risk Purchasing Groups, or RPGs, are legal entities that allow a group of organizations with similar operations and therefore similar risk profiles to band together and purchase joint insurance taking advantage of their combined assets to increase negotiating power in insurance pricing and coverage. These RPGs have provided an outlet through brokerage houses. Many of these houses have imploded, meaning they have experienced significant rate increases or have closed entirely. In some cases, these renewals have gone up more than 30% on property and 200% on liability RPG programs pending specific risk profiles of the underlying companies. Notwithstanding the rising rate environment, UIC has helped its clients mitigate increases and has often obtained overall reductions through their independent analysis and proprietary competitive sourcing models.
Commercial Real Estate
Real estate owners, developers, and managers in the commercial space have a distinct advantage in the market: quality risks remain the focus of carrier capacity offerings. Portfolios exposed to natural catastrophes need a disciplined approach to achieve an optimal outcome in the marketplace.
Term life insurance
Term life insurance, as the name indicates, only covers you for a specific term or a number of years (e.g., 10, 20, or 30 years). As long as you pay your premiums and keep your policy active, your beneficiaries should get a lump sum in the event of your death.
If you outlive your policy term, the coverage expires, and you can either renew (if offered) or apply for a new policy. The premiums can be affordable, but they get more expensive as you get older.
Whole life insurance
Whole life insurance coverage lasts your entire lifetime as long as you keep up with your premium payments. It may also offer cash value benefits like a form of savings or investment account associated with it. Over time you may get money credited to you. While this type of life insurance sounds attractive, it is also substantially more expensive.
Regardless of what type of life insurance you choose, you want to make sure you fully understand what is associated with each, how much coverage the premium provides, and if there are any conditions or requirements.
Multi-Family Properties & Habitational Risk
This segment of real estate continues to experience the most significant insurance capacity challenges. Beyond the natural catastrophe losses in 2017 and 2018, multifamily portfolios are producing fire and water damage losses, causing some carriers to exit this risk class or increase rate and deductible even for low-loss level insureds. With overall segment capacity shrinking, insureds with exposures to natural catastrophes and below-average loss history can expect significant rate increases. In addition, liability claims involving tenant discrimination, wrongful eviction, and sexual harassment have been unrelenting. Real estate owners and managers will need to provide comprehensive information on risk controls and risk management strategies when placing coverage associated with these exposures.
Anticipated Rate Changes
- Non Catastrophic -2% – 2%
- Catastrophic +2.5% to 10%
- Catastrophic with Losses +10% to 20%
- Catastrophic with Severe Losses +30%
For more information and a complimentary overview of your company’s existing coverage, please contact; Boris Khovitch, UIC Director of Business Development, at Bkhovitch@uici.com or RiskAdvisory@UICI.com at (201) 661-5010.
UIC Consulting, LLC, provides objective reviews of insurance policies, including those covering workers’ compensation, property, automobile, liability, and directors and officers.