Looking Ahead: Property Insurance Market and Risk Trends in 2016

The combination of limited natural catastrophe losses, increased insurer competition, and an influx of alternative sources of capital contributed to rate decreases for many buyers of commercial property insurance in 2015. Barring unforeseen changes in conditions, most organizations can expect further rate decreases in 2016 — though perhaps at a slower pace.

As certain insurers have experienced pockets of profitability challenges, some may look to curtail further rate reductions; however, the surplus of capital in the broader marketplace will ultimately help determine future market conditions.

Rates: At the end of the fourth quarter of 2015:

• More than 60% of companies with “all-risk” property policies renewed with rate reductions.
• Rates were down typically 5% to 10% for non-catastrophe (CAT)-exposed organizations.
• Moderately and largely CAT-exposed companies generally saw rate decreases between 5% and 15%.

Terrorism insurance: While the year started with uncertainty around terrorism insurance, the passage of the federal Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA) brought greater certainty to organizations that depend on such coverage. Insurers continue to closely monitor aggregate exposures for central business districts in major cities. Some companies are turning to standalone terrorism insurance marketplace, which can be more competitive than TRIPRA coverage.

Terms and conditions: Insurers will likely continue scrutinizing coverage terms and conditions around such areas as flood, storm surge, and contingent business interruption. Data quality thus remains critical for catastrophe models and renewals. Some organizations will explore multiyear policies in an attempt to lock in low rates.

RISK TRENDS

Among the issues property insurance buyers should keep an eye on in 2016 are:

• Floods: Flood disasters represent the number one natural catastrophe in the US, leading to business continuity and crisis management issues.
• Terms and conditions: Insurers looking to keep rates from dropping lower may be willing to improve terms and conditions.
• Cybersecurity: Cyber issues will continue to play out in property policies in 2016 as business interruption losses stemming from cyber-attacks are an increasing concern for many organizations.
• Contingent business interruption: CBI continues to challenge organizations, particularly those with large supply chain networks. Companies that can better quantify their supply chain risks often fare better in terms of coverage and price.

As you manage these risks in 2016 and beyond, seek support and advice from your risk and insurance advisors. For more information on property and other insurance markets, read Marsh’s United States Insurance Market Report 2016 on market trends.