The US property insurance market is under enormous pressure. Underwriters for both admitted and non-admitted insurers are fighting to restore profitability to the property insurance market, especially in areas of the country exposed to severe weather perils like hurricanes, hail, tornadoes, flooding and wildfire.
Just about every segment of the property insurance market has seen a steady pace of rate increases since the middle of 2018. This follows a record $105.7 billion in insured catastrophic losses in 2017, when the US fell victim to Hurricanes Harvey, Irma and Maria, as well as a severe wildfire season and convective wind and hail issues. Although insured property losses in 2018 and 2019 averaged less than half those of 2017, insurers are still seeking rate after rate in order to make up their losses.
“The second quarter of 2019 is really when we saw a rapid uptick in rates and capacity constriction, and that continued to accelerate throughout the year,” commented RPS National Property Brokerage president Wes Robinson. “The question is, what are the accounts that received pretty big rate increases in 2019 going to look like in 2020? I think insureds and retail agents – really, everyone along the value chain – is going to become weary if they continue to get rate over rate over rate at a high level.
“For years, property insurance rates were pushed down. All of the catastrophe losses we saw in 2017 and 2018 came on the heels of five, six, or seven years of rate decreases, so that exacerbated the problem and created the need and demand for rates to go back the other way. Typically, in a firming market you end up with a very short amount of time relative to when rates are decreasing. The carriers know that and they’re trying to do what they can to get themselves back into a position of profitability and a position where they feel like their books are healthy.”
The firming property insurance market is challenging for insurance brokers. According to Robinson, many transactions take three or four times longer than they used to, especially for layered and shared property accounts. That might be because brokers have to work with more insurance companies on each deal, or because the solutions the market is trying to push are not sellable. At the same time, underwriting restrictions and a change in appetite among standard market admitted carriers, has resulted in a huge surge of business in the excess and surplus (E&S) lines market.
“Brokers are having to re-engineer every one of these accounts to a point where they become something palatable for the insurance carriers all the way down to the buyers – and then it’s still probably going to be frustrating on all sides of that,” Robinson told Insurance Business. “Accounts are taking much longer to service for a couple of reasons. There’s a resource crunch on the carrier side because E&S carriers are trying to fix their books, while at the same time handle all of the new business that has come into the E&S industry from the standard market admitted side. There are certain carriers out there that have shed a lot of limits, and when that happens, those risks typically come over to the E&S market. We were drinking from a fire hose in 2019 and that looks to continue through 2020.”
At times like these, brokers must do everything they can to stand out from the crowd. They need their submission to make it to the top of the underwriter’s pile, which is tricky considering some carriers are getting 50,000 submissions every year.
“You need to give the underwriter a reason to look at your account. Give it the extra special attention it deserves,” stressed Robinson. “Employ basic risk management techniques and showcase those upon your renewal. Things like appraisals, deferred maintenance schedules, disaster recovery plans, contingency contracts for your suppliers and your customers, flood protection, legal contract review with your vendors for subrogation possibilities, are all important. Do anything you can to show the underwriting community: ‘This why I’m a better risk than the condominium next door. This is why you should look at me,’ because that 50,000 submissions a year is a very real number.”
The last time the property insurance market saw this level of change at such a rapid pace was after Hurricane Katrina in 2005. The industry has transformed since then and has grown significantly in size. Robinson issued one lasting piece of advice for brokers navigating these changes: “Be prepared for the unexpected and communicate early. These are special times and you really need to concentrate. Everything takes longer than it used to, and you’re going to get a curveball along the way, you just don’t know where from.”
