Staying Ahead in the Property Insurance Market

Buyers of commercial property insurance may be experiencing days of wine and roses, but issues on the horizon may require you to remain vigilant.

Property insurance rates continued their downward trend in 2016, with fourth quarter rates down in the mid-single digits for both catastrophe (CAT) and non-CAT exposed risks. New capacity into the US and Bermuda markets from traditional and non-traditional sources added even more competition, and reinsurance markets remained well capitalized.

There is plentiful capacity in the property insurance marketplace due in part to few major catastrophic events since 2012’s Superstorm Sandy. Unless we see a CAT loss in the range of tens of billions of dollars and other market-moving factors such as a large interest rate movement, rates are expected to remain steady or trend down again in 2017, but not to the same extent we have seen in years past.

Despite the positive outlook, here’s what you should watch for in the year ahead.

Flood Risks

Flooding remains the number one cause of property losses. In 2016, inland flooding drove significant losses. 2017 is expected to be an important year for the marketplace, as Congress must decide whether to reauthorize the National Flood Insurance Program (NFIP) before it expires on September 30. The NFIP has long been the target of proposed changes because it runs a large deficit, and while its restructuring or replacement to some extent is likely, the uncertainty may create a jittery market.

First-Party Cyber Risks

Property insurers are reexamining how cyber risks present first-party threats. Historically, a physical event was necessary to trigger property policy coverage, but insurers and buyers are recognizing that first-party cyber risk can cause business interruption and contingent business interruption. We are now seeing time element losses triggered without physical damage — for example, the introduction of malware that prevents a business from running as usual.

Building Effective Property Insurance Programs

Taking these potential threats into account, how can you get the most out of your next renewal? Here are a few simple steps that we recommend:

1. Understand your flood risk by reviewing your modeling results and the sublimits in your policy. Also, talk to your insurance advisor about potential coverage solutions.
2. Review your cyber exposures. Does your policy include physical and/or non-physical damage coverages? Work with your insurance advisors to determine if endorsements or embedded coverage that addresses first-party risks are available.
3. Plan for your next renewal with a defined risk management philosophy that you can demonstrate to insurers, along with high-quality data that you can share with underwriters.

For more on the state of the insurance markets, listen to a replay of Marsh’s New Reality of Risk® webcast.