The Hardening of the U.S. Commercial Property Market

The hardening of the U.S. commercial property market, where insurance rates are consistently rising in the context of difficult-to-find coverage, is likely to go on for many more years. Experts go as far as claiming that this is the hardest property market that has ever been observed — especially within the last two decades. Rather than one single factor, a multitude of factors are attributed to this unique market condition. This article will go over the main contributors that have led to the hardening of the commercial property market to the extent that we are seeing today. 

Severe Weather Patterns and the Pandemic

Although severe weather patterns — snowstorms, hailstorms, hurricanes, and floods — have been making headline news for a while, they have been occurring with enough frequency to be of concern as of 2012. From 2012 to 2017 in particular, the insurance market was impacted by these severe weather events and the loss environment created by them resulted in a loss of around $10 billion dollars. In the years prior to 2012, this type of loss and the accompanying hardening of the property market would have been temporary. But in this case, the insurance market wasn’t earning enough profits to recover from the loss. This ended up creating a domino effect by the time the pandemic and more severe weather conditions arrived. 

Supply Chain and Limited Building Materials

Along with the devastations of commercial properties impacted by these severe weather events, the pandemic brought on somewhat of a shutdown to the supply chain of necessary building materials, which further exacerbated the problem by creating inflation of key resources. The initial thought was that the commercial property market could stabilize, but property claims related to the pandemic came in droves. The court system became overwhelmed and backlogged, resulting in a delay of property claims resolutions. Once the next hurricane season arrived, it made the recovery of market conditions all the more difficult.

The Role of Insurance to Value (ITV)

Insurance to Value (ITV), the assessment of the overall cost that it would take to replace the insured property, also plays a role in the hardening of the commercial property market. ITV often comes in the form of statistical probability models that determine the estimated pricing and other important variables for the replacement cost. Because of its important role, it is the very start of the insurance process and goes as far as determining the outcomes. Without ITV, carriers will rely on some guesswork or incorrect estimations, which are susceptible to errors. With the hardening of the commercial property market lingering, insurance agents, carriers, and brokers will be likely to increasingly incorporate ITV into their insurance process. 

Want to know more about the state of the hard commercial property market? Get a glimpse into what the experts are saying as they do a deep dive into property valuation, limited supply chain availability, loss exposures, increasing insurance rates, and more in a recent article here. Are you considering property insurance in lieu of the hard commercial property market? Quaker Special Risk has extensive experience in this area for more than 30 years. Contact us for a quote.

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