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Conference Addresses Emerging Risks and Market Shifts in Real Estate and Hospitality Industries
Each year Marsh hosts more than 250 real estate and hospitality industry leaders and innovators for a two-day discussion of the latest risk management trends and hot topics.
The annual event is usually held in person in Chicago but for 2020, the event was held virtually. The presentations are available to watch on this page. And don’t forget to save the date for next year’s conference – Oct. 19-20 at the Four Seasons Hotel, Chicago. You can request an invitation to next year’s event by clicking on the link on the right side of the page.
Lloyd's CEO on the Pandemic Affect on the Insurance Industry
The ongoing COVID-19 pandemic has demonstrated the broad effects of catastrophic events, underscoring the need for organizations to be better prepared. The insurance industry has a crucial role to play, both by offering coverage solutions and educating businesses about the value of risk transfer products, said John Neal, CEO of Lloyd’s.
Speaking to John Doyle, Marsh’s president and CEO, Neal stressed the need for a public-private partnership to respond to losses sustained from the next systemic event, for which the world is still largely unprepared.
“The pandemic has shown us that these things aren’t theories any more. There’s a reality to them,” he said.
For many organizations, the pandemic has uncovered shortcomings in a strategy that focuses solely on efficiency at the detriment of resilience. That emphasis has changed as the pandemic has forced businesses to innovate and think differently. “A lot of conversations with clients in 2020 are more oriented around resilience,” said Doyle, adding that one of his takeaways from the events of this year is finding the right balance between resilience and efficiency.
Preparing For Future Events
As it strives to ensure that society is better covered for future calamities, the insurance industry needs to start by designing products that respond to non-damage business interruption. A conversation is also required to determine the necessity of a pandemic reinsurance product similar to government backstops created in the aftermath of the September 11, 2001, terrorist attacks.
But having the right products in place is not enough. The insurance industry will also need to educate senior leaders about the importance of transferring risk, and work towards the necessary penetration. “It’s up to us, as an industry, to better explain the value proposition of transferring risk,” Neal noted. This can be especially important in areas where penetration is still low — for example, coverage for intangible assets.
The COVID-19 pandemic and broader, long-term trends in the insurance industry have contributed to a sustained period of pricing increases and tightening of capacity, terms, and conditions. Price adequacy, however, has still not been reached, Neal said, although some lines — including direct property business — are close. Considering the reverberating effects of the pandemic, prices could continue to rise for some insurance products in the coming two years, he said.
But this period of economic shock is likely to lead to repricing of risk, potentially allowing businesses to settle claims at new values. “I see this as an opportunity for us as an industry and working with our clients,” Doyle said.
The Future of the Real Estate Industry
The pandemic has accelerated the transformation of the real estate industry in nearly all sectors – from retail to office to hospitality. The shift from brick and mortar retail to online shopping; the rise in remote work and the decline of the traditional travel industry were already occurring before COVID-19.
The global pandemic only accelerated those shifts – and the real estate industry is facing strong headwinds, according to data from Bart Higgins, the found and creative director of Future Perfect X:
- 50% of consumers are doing more than 75% of their shopping online and 25% do more than 90%.
- 78% of CEOs think remote work is here to stay.
- Only 1% of workers want to go back to the office full time after the pandemic.
- 215 million square feet of office vacancy will have been lost due to the pandemic.
- 50% of Fortune 500 CEOs said business trips at their companies would never return to what they were before COVID-19.
Higgins recommended companies not hope that things will just go back to normal after a vaccine is widely available. In his discussion, he suggested companies embrace the human need for personal interaction. That need will drive consumers back to physical locations – not a desire to make a purchase or a requirement to report to their desk at a certain time.
Real estate will not bring people together for commerce but for human experience and human interactions. Our need for each other is powerful and not changing. Higgins made the following recommendations for each sector:
The Future of Retail – Meaningful Moments
- Transactions will not drive traffic.
- Consumers will pay to spend time having exciting experiences.
- Profitability will be measured beyond bricks and mortar experience.
The Future of Workplace – Places for Collaboration
- HQ will become a place to come to just when you need to work together.
- Working from home when you can will become a mandate
- Flexibility and autonomy will become the norm, reducing the need for a desk for every employee.
Future of hospitality – slow travel
- Hotels will reposition to homes.
- Rural destinations will be sought after.
- Travel will be about intimacy and connection.
What's Next for the Global Economy?
Sergio Rebelo, an economist at the Kellogg School of Management at Northwestern, discussed how people must better understand the negative externalities of the spread of the virus in order to better control the virus and allow the economy to recover. He emphasized the need for government intervention in virus control to create an opportunity for economic recovery.
Professor Rebelo explained that part of the reason for the difficult recovery from the -9% GDP drop in Q2 2020 is that the overall economy has not fully recovered from the Great Recession of 2008. Real GDP growth is still lagging the 2.1% growth that drive the economy prior to 2008.
Usually following a recession there is a surge in GDP growth to get back to trend, Rebelo said. That did not occur after 2008. Professor Rebelo does not believe the US economy will ever return to that 2.1% growth rate.
This lack of growth is felt most acutely in the labor market where unemployment claims remain high in the midst of the pandemic.
Property Market Panel
Property insurance underwriters discussed why rates are increasing in the real estate and hospitality market and what to expect going forward.
The market has been challenged with a record number of named storms in the United States in 2020 in addition to tornados, hailstorms, massive wildfires and civil unrest. And all of those challenges have been exacerbated by a global pandemic and contributed to 12 straight quarters of rising property rates.
Previously challenging markets such as the mid 80s, post-9/11 and following deadly hurricanes such as Katrina and Rita lasted only about 18 months, panelists said. This challenging market has extended for more than three years.
The difference in this market is partly due to the affect of climate change on the severity and frequency of large weather events. Carriers used to estimate they would pay on one major catastrophic loss event every three years. Now, panelists say they are paying for multiple events every year.
Panelists feel they are continually chasing price related to repeated events rather than just trying to recover from one event as in previous tough markets. There has been no "quiet period" this time to recover from events.
Panelists included:
- Maria Grace, Chief Underwriting Officer Property and Inland Marine, Everest RE
- Michael Chang, CEO Sompo Global Risk Solutions, Sompo International
- Dunan Ellis, Head of Retail Property, North American General Insurance, AIG
- Sanjay Godhwani, EVP, Berkshire Hathaway Speciality Insurance
- Ryan Barber, National Advisory Leader, US Property Practice, Marsh
Casualty and Financial Lines Market Panel
Renewals have been challenging prior to the COVID-19 pandemic but the casualty and financial lines market seems to have gotten worse since the start of the pandemic in the United States. The drivers of the tightening market include losses that exceed annual premiums, larger jury decisions against big business and an increasingly uncertain and unpredictable world.
Panelists were also concerned with the increasing level of violence in society and at insured location. Claims for events such as shootings, assaults, sexual assaults or other violent crime are commonly found when looking through an insured's submission. These tougher claim scenarios are becoming more prevalent.
Now the COVID-19 pandemic has introduced economic uncertainty into the mix. Insurerers are concerned about not only rising workers' compensation claims related to infection but also non-COVID-19 related claims. If layoffs are looming, workers may try to submit claims for injuries at an increased rate to stave off layoffs, panelists said. COVID claims are expected to remain long after the pandemic is past.
Panelists included:
- Dan Aronson, US Casualty Practice Leader, Marsh
- Mary Henderson, SVP of Underwriting, Financial Insitutions, Argo Pro
- Kevin Maloney, SVP, North America Casualty & Real Estate Practice Leader, Allied World Insurance
- Luke Testa, VP North American Real Estate Underwriting Manager, Chubb
- Darren Cromwell, Sales and Industry Operations Leader US, Marsh
Real Estate Industry Leadership Panel
Real estate investors reviewed the market is changing following the onset of the COVID-19 pandemic. Some of their key points included:
Current Themes in the Equity Capital Markets
- Transaction activity is down significantly due to various shelter-in-place orders across the country, and uncertainty how how to write deals.
- Hospitality sector is hit the hardest
- Debt markets are slowly thawing, but showing signs of life.
- Since the beginning of the outbreak most deals have been put on hold.
- Fed Intervention should help stabilize debt markets (corporate & real estae) and drive risk spreads tighter over next 6-12 months.
Panelists included:
- Stephen Livaditis, Managing Director, Eastdil Secured LLC
- Douglas Lyons, Managing Principal, Pearlmark
- Robert Ivanhoe, Vice Chairman, Greenberg Traurig
- David Tessier, President and Founding Member, Hospitality & Gaming Advisors
- Jeffrey Alpaugh, Global Real Estate and Hospitality Practice Leader, Marsh