Thanks to a string of natural disasters, the COVID-19 pandemic, supply disruptions, social and civil unrest, production shortages, and a slew of other economic factors, 2020 was one of the most expensive years for the insurance industry since 1970. Insurance loss estimates totaled up to $83 billion, according to Swiss Re Institute—and we’re feeling the crunch industry-wide. In addition to price increases, we’re seeing increases in deductibles, reduced capacity, and mid-year term restrictions or changes in coverage.

Property insurance has perhaps suffered even more than other lines, driving up premiums and making large properties, which were already tougher to insure, that much more expensive to cover. We’ll dig into some of the reasons the market is currently so difficult, break down how that’s affecting property insurance, and explain what you can do to help high-end property clients weather the storm. 

What’s Causing the Hard Market?

The insurance market is cyclical, alternating between hard and soft cycles that are created by surrounding economic conditions. The hard market we’re seeing now can’t be attributed to one single event or key turning point, but rather a host of key drivers peppered throughout 2020, including: 

  • Recent Natural Disasters: The year 2020 was not only marked by wildfires across the Pacific Northwest, it was the most active Atlantic hurricane season on record. Natural catastrophe losses across the US rose from $39.6 billion in 2019 to $74.4 billion in 2020. 
  • Social and Civil Unrest: Rioting across the United States caused property damage with claim costs upwards of $1 billion. As a result, some carriers have had to place restrictions on new policies or policy renewals in certain zip codes. 
  • The COVID Pandemic and Its Cascading Effects: As of June 2021, Reinsurance News estimates the total running losses due to COVID-19 at $37.381billion. And while that number only reflects cost directly to insurance companies, the pandemic prompted a domino effect on countless other areas of the economy—port closures, manufacturing bottlenecks, delivery delays, increased transportations costs, tariff increases—that have all pushed up consumer prices.
  • Housing Market Fluctuations: Prior to 2020, the housing market was already lagging behind demand for new construction. Add that to the recent lumber shortage, along with other building material shortages from the past year, and we’ve seen increases in home prices nation-wide. Rising home prices and building supply cost increases means higher replacement costs, and, as a result, higher home insurance premiums. 

Any one of these factors would have had an impact on the insurance market, but all combined, they’ve created a substantial disruption. The result? Insurance rates are climbing, overall capacity among carriers has shrunk, and underwriting guidelines are restricted. 

Impacts are being Felt Across the Entire Property Market

Commercial, professional, and personal property owners alike are feeling the squeeze. Across the board, property owners are finding it harder to obtain coverage or paying more for their existing coverage—or both: 

  • Commercial: Commercial properties have seen a broad range of renewal rate increases, depending on things like location, risk exposure, and loss history. Most rate increases are between 5-20%, but they’ve climbed as high as 400-500% in extreme cases. 
  • Professional: In the professional sector, the cyber market, in particular, has experienced a particular hardening. Due to an uptick in the severity and frequency of targeted attacks, privacy failures, ransomware incidents, network security and privacy, cyber liability coverage is up from 50% to 100%. Buyers shopping around for cyber coverage policies that include both primary and excess layers should expect to see a 25-50% increase, depending on their loss history and rigor of existing security measures. 
  • Personal: Personal property owners are also feeling the squeeze—especially if they’re in disaster-hit areas (such as the wildfire-affected Pacific Northwest and coastal areas pummeled by recent hurricanes), older constructions in higher risk locations (like Florida), as well as properties with home limits over $25 million. 

How Can Insurers Support High-Value Property Clients

Given the market, increases are unfortunately inevitable, but there are ways insurers can support property owners through this difficult cycle: 

  1. Be proactive: The earlier property owners can start the submission process, the better chance brokers have to identify ideal carriers, particularly amidst current capacity constraints. 
  2. Explore risk improvement opportunities: Property owners can improve their overall risk profiles by implementing upgrades, improvements, and safeguards to their properties. Dig deep to be sure clients have disclosed all recent improvements that can temper risk. And, offer practical recommendations for additional risk mitigation measures when possible. 
  3. Think outside the box: A single insurance package may not always provide the best coverage at the best price. Higher-end clients are beginning to accept (and even expect) the reality of combining coverage from several different insurers. You’ll need to be creative in pulling together the best combination of options for property clients. 

At Quaker, we specialize in securing coverage for hard-to-place risks, with our large binding authority across numerous markets. While no one could have anticipated all the factors leading to this hard insurance market, we can provide the expertise and resources you need to confidently navigate through it. Contact us to learn more.