Are Commercial Property Insurance Rates giving you sticker shock? Wonder why rates on the commercial property continue to rise year after year? Don’t know what to do to combat these price increases?
In this video and post, I’ll give you some background on what’s causing rising commercial property insurance rates and what you can do about it.
Okay, commercial property rate increases, what’s causing them, is there anything you can do about them, and when are the increases going to end?
All good questions. First, let me say that I get it. This is frustrating.
For the past few years, you’ve seen insurance costs rise and there doesn’t seem to be any end in sight.
On top of that, your insurance agent may just be shrugging their shoulders and saying “that’s the best i can do”, which is even more frustrating.
First, it’s not just you and your property.
Every property owner, whether you’re an investor with a portfolio of properties or you own a building that houses your business is seeing increases, and here are the factors contributing to those rate increases:
- Catastrophic Claims– are widespread and affect dozens, if not hundreds of insured locations at the same time. Wildfires, floods, hurricanes, crazy snow storms, and other catastrophes are causing huge claim payouts that impact ting all insurers across the country. When insurers pay out huge amounts they need to do two things:
- they need to increase rates to maintain profitability and
- they need to buy more reinsurance to spread their risks to other insurance companies known as reinsurers and that brings me to point 2
- Reinsurance – All these catastrophic events we’ve seen in the past several years have caused reinsurers to raise the rates they charge insurance companies like your insurer.
Reinsurance is how brand-name insurance companies you’re familiar with spread their risk; it’s where insurance companies go to buy insurance. Most reinsurance contracts renew on January 1 and July 1 and the January 2023 renewal season was ugly.
The cost of property reinsurance went up anywhere from forty to 100 percent or more. While reinsurance is only a portion of the cost your insurance company pays for risk, it’s a big chunk of it, and it gets passed onto you, the buyer. Another thing that happened in this last renewal cycle was a drop in capacity – meaning that primary insurers – like the ones you purchase insurance from – were unable to cede or transfer as much risk as they’d like to reinsurance companies. In some instances, the reinsurer’s capacity to take on risk was reduced by 80% or more.
Less capacity means your insurer is retaining more risk and not spreading it to the global reinsurance market so they need to charge even more to maintain profitability. This is also the reason why so few insurers can write property insurance in states like Florida or other catastrophe-prone areas.
- Inflation – this may seem odd – “why would inflation affect my property rates?” Well, things like labor shortages, supply chain issues, building material increases, and more are pushing the costs of property replacement costs higher over the past several years. To keep pace, your property values need to increase which only compounds the cost increase equation.
The forecast for 2023 isn’t pretty.
Industry sources are indicating that as catastrophes continue to hammer the U.S. and capacity tightens we could be looking at price increases of 25 percent or more on the commercial property depending on location, type of property, and your loss history.
If you’re a property investor that will of course reduce your portfolio’s net operating income, and you’ve probably been struggling with property rates and umbrella liability rates already for a few years.
So, what’s the solution for these Commercial Property Insurance Rates issues?
In my opinion, there are three things you need to be thinking about.
First, do you have the right broker relationship?
There’s been mass consolidation in the insurance agent and broker world over the past few years and many insureds are feeling left out in the cold.
The long-standing broker relationship they had is over since their broker was bought out and retired. Now they feel like just a number in a huge faceless brokerage.
On the other hand, maybe the trusted broker you’ve had for years just isn’t up to the task of effectively marketing your insurance program.
If you don’t have confidence in your broker, then it’s time to find a broker relationship that fits your needs. But that doesn’t mean shopping your coverage out to a handful of brokers to get quotes.
That’s the least strategic thing you can do and will result in terrible outcomes.
Second, start this process early – like 4 or 5 months in advance of your renewal and start interviewing brokers to find the ONE you can trust to do a good job and then permit them to perform a broad market canvass.
Part of that market canvas means the broker needs to prepare a submission to the market that will get attention and this will mean some work for you.
This is item 3 on my list and It may include depending on the size of your account details – lots of details as to why your property deserves competitive rates.
- What updates have you performed on the property,
- what is your maintenance program like,
- what does your loss history story tell,
- how have you developed replacement values,
- how often do you inspect the property for potential risk issues,
- are you willing to retain higher levels of risk in the form of bigger deductibles,
- and more.
The bottom line is that if you want best-in-class rates, you need to demonstrate why you deserve best-in-class rates.
As I mentioned earlier there is limited capacity in the marketplace.
Shot-gunning your applications out to multiple brokers or underwriters without addressing the issues I mentioned will not return positive results.
In fact, it could actually harm you. You need to think strategically here.
Another point I want to make is that the rate increases you’ve seen or are seeing are not an aberration. I think we’re going to see rising rates for commercial property insurance for several more years as the marketplace seeks to stabilize itself and return to profitability in the face of changing global weather patterns and catastrophic events.
The sooner you can adjust to these realities and think more strategically in partnership with your broker, the better off you’ll fare.
If you’re looking for a team of dedicated experts to help you with your property insurance coverage, I hope you’ll consider giving me a call.
Let’s chat and see if we’re a good fit for you and your business insurance needs.