North American perspectives
Property predictions for the year ahead
Our North American perspectives article gathers views and perspectives from your side of the Atlantic. For this edition, we reached out to insurance specialists on the retail and wholesale sides of the business. Here are their views for Property in 2023.
North American perspectives
Property predictions for the year ahead
Our North American perspectives article gathers views and perspectives from your side of the Atlantic. For this edition, we reached out to insurance specialists on the retail and wholesale sides of the business. Here are their views for Property in 2023.
Retail broker perspective
As we move into 2023, the outlook for the property market is increasingly uncertain. Despite some slight decreases in rates throughout the year, Hurricane Ian has caused shockwaves through the market, leading to significant rate increases for CAT-exposed properties and coastal locations, especially in Florida. These performance issues have been compounded by the underperformance of modelling and a rise in inflationary pressures in the last six months (1). Insured losses from Hurricane Ian have been estimated at up to USD60 billion, though this figure is subject to wide variations, adding an extra layer of complexity to the pricing outlook.
Insurers are looking to protect their losses in the face of Q3 earnings, and this has translated into reinsurance costs increasing along with the risk of litigation and rising inflation (1). In addition, due to the imbalance between supply and demand in the US wind CAT treaty market, the capacity for CAT-exposed insurance portfolios is expected to decrease, leading to potentially unaffordable rates in Florida (1). Even before Hurricane Ian, premises exposed to wildfires and high winds in the Western states and Midwest were receiving extra scrutiny from underwriters.
Furthermore, the trend of raw material prices beginning to plateau and decrease, particularly for lumber, is likely to be reversed as demand again increases (1). This, coupled with the effects of general inflation, could mean that the gap between reported and actual values for insurance transactions will widen, leading carriers to ask for better reporting on value adjustments rather than arbitrary incremental ones. This will mean policyholders, finding the means to provide more reliable, data-based valuations for their coverages.
Producer price index of construction materials since 2016
Source: Bureau of Labor Statistics, NOAA, Inside P&C
Insurers in the standard market are attempting to restructure their portfolios and reduce the amount of coverage for areas where losses have had negative impacts on their P&Ls. This shift has been the driving force behind the sudden increase in premiums and growth in the excess & surplus lines market. Price hikes in non-catastrophic accounts had been decreasing staying within the single-digit range, but classes of business with a history of poor losses are still seeing significant rate increases. This could all come under pressure with rating increases again accelerating to secure capacity.
(1) Target Markets: Four questions for the MGA market that need answering (insidepandc.com)
Wholesale broker perspective
For our book of business, focused primarily in the Midwest States, we are forecasting general rate increases from 10% to 25% depending on whether the Property is CAT exposed or has incurred losses.
The premium increases for most insureds will be influenced by inflated construction costs, upward reinsurance pressure and valuation challenges. We are also expecting capacity issues as the property markets continue to constrict for our larger risks. In the past, what might have required two or three carriers to meet coverage requirements, could take four or five carriers in the coming year.
As a result, we are placing increased emphasis on the importance of risk analysis, complete submissions, and a deep understanding of the risk profile so we can present the risk to underwriters for the best terms. Finally, we are seeing some coverage restrictions due to changes in reinsurance treaties, especially surrounding terrorism and strikes, riot & civil commotion.