Market Changes and Challenges for Commercial Property Risks

Shane E. Holden, ARM

Senior Vice President, Property Broker

September 16, 2019

By Shane E. Holden – ARM
Senior Vice President, Property Broker

This year has commercial property carriers experiencing a multitude of industry challenges. As a result, the industry will see continued changes in the market as carriers look to bring their property books back to a more profitable level.

From increasing rates and deductibles to fewer classes of business and stricter underwriting, the following are key industry challenges facing commercial property risks.

Accelerating Rate Increases
As we get closer to the fourth quarter of 2019, insurers should expect rate increases across the board of 20%, 50%, 100% or higher, according to Willis Towers Watson. Even accounts with low catastrophic exposure and favorable loss history are beginning to experience double-digit rate increases.

Carrier Capacity Reductions
Risk selections will continue to tighten as carriers become more discriminating in the risks they are willing to accept or renew. This has created challenges for commercial properties to meet more stringent conditions, as quality risks remain the focus of carrier capacity offerings. Carriers are in many cases reducing their overall line capacity offerings on accounts, even on renewals.  This reduces the economy of scale for larger line sizes, and is increasing the frictional cost to purchase the same amount of coverage limits from last year.

Increased Deductibles
Property carriers have increased percentage deductibles generally on nearly all accounts over the past several renewal cycles in high-wind zones or with critical catastrophe exposures. Accounts with dollar caps may also experience moderate to substantial increases in deductibles and could very well see the removal of the dollar cap entirely. These changes have made it critical for brokers to review the impact of various deductible options to determine the cost benefit of alternative deductible structures.

Fewer Policy Options
Expect to see more commercial property carriers tightening coverage options and policy enhancements, especially for Critical Catastrophic risk exposed accounts. For those that continue to offer coverage enhancements, an additional premium may be assessed or factored into an increased premium.

Insurance to Value Changes
Weather-related catastrophes and other industry losses have applied pressure regarding previously acceptable ITV level inadequacy born by the replacement value amounts paid in claims. Carriers have increased the scrutiny of ITV formulas, and will recalculate and/or raise requirements — depending on the type of building construction.

Habitational Real Estate and Multifamily Properties Challenges
Over the last year the habitational market has witnessed market contraction. London Syndicates have pulled back from the space, or in some cases closed down. Previous primary US markets have ceased writing primary habitational business and moved to excess only, or in some cases stopped writing in any layer position.  Remaining carriers are moving towards what they view to be rate and deductible adequacy for the class, resulting in renewal increases from 20% to 50% (and sometimes higher).

Key Takeaways
Underwriting standards will remain disciplined to improve profit margins
Accounts with Critical Catastrophic exposures and losses will most likely face renewals with increased rates, less broad terms and reduced capacity
Carriers offering capacity on assets exposed to Convective Wind will stringently underwrite risks with proposed rate and deductible increases in those states
Given recent London and US carrier participation contraction, primary habitational real estate and multifamily properties will experience an increase in rating pressures
Frame habitational risks will also continue to face increased underwriting scrutiny and capacity challenges, in many cases with higher deductibles

Given these and other market changes and challenges, the experts at Worldwide Facilities recommend that commercial property brokers begin the renewal process early and explore multiple market strategies. Innovative and creative renewal strategies are key, and insureds must be kept informed of the challenging market we currently face.

For information on coverage options regarding habitational or other commercial property risks, contact Shane Holden at or 678-533-4044.

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