How Risk Management is Transforming Risk in Commercial Property

By Andrea Wells

Source: Insurance Journal

Commercial property underwriters are adjusting to a market defined by rising catastrophe losses and dwindling profits. From increasing rates and higher deductibles to fewer classes of business and stricter underwriting, even the best in class properties are feeling the heat.

Overall, commercial property rates have risen several percentage points even for buyers not facing catastrophe risks, according to Willis Towers Watson. For those with significant cat exposures or adverse losses, the rate hikes are in the double digits in the aggregate for the first time in several years.

Commercial property insurance renewals are generating rate increases between 5% to 10% for the best accounts, while some property programs have seen increases of upwards of 50% or more in 2019, according to Woodruff Sawyer, an Insurance Journal Top 100 Agency.

Casey Soares, senior vice president, property specialist at Woodruff Sawyer, says that while there’s plenty of capacity available in the market, carriers are scrutinizing every piece of business and re-underwriting commercial properties, in particular.

I think there’s been an uptick of companies underwriting more, restricting their capacity usage more.

The heightened attention is part of an effort to turn the market around following the surge of single risk losses during the past two years, she said. The 2017 Atlantic hurricane season was one of the costliest seasons on record with combined insured losses of more than $200 billion from Hurricanes Harvey, Irma and Maria. Then in 2018, California experienced its most destructive wildfire season ever with insurance claims surpassing $12 billion.

“These events are what spurred this market turn,” Soares said. “That’s causing carriers to look at each account and make sure they’re making smart decisions and actuarially sound rates and coverage.” It’s been an “across-the-board dedication” to transform the market.

While the adjustment has been good for the insurance industry, it’s a challenge for commercial property owners who are facing insurance costs based on a “true reflection of risk,” she says, noting that’s a difficult adjustment for any insured.

Agents say habitational is the most challenging commercial property risk today. “Anything frame construction, especially frame builder’s risk,” Soares said. “Habitational is truly a hard market where there is a lack of capacity.”

Accounts with a high loss potential such as those in manufacturing, with a hazardous or combustible risk profile, can also be tough in today’s market, she says.

Despite the re-evaluations going on, even in the toughest classes of business, there’s some carrier willing to write the property coverage. Barry Whitton, managing director for Burns & Wilcox Brokerage, contends market capacity is not an issue, although more stringent requirements on that capacity are.

“I think there’s been an uptick of companies underwriting more, restricting their capacity usage more,” he said. “There is less of a willingness to use that capacity for a cheap price.”

Even the standard commercial property market is experiencing rising rates, albeit at a slower pace, Soares said.

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