The market for commercial property insurance continues to be challenging. Here are several factors contributing to premium increases for commercial property coverage.
1. Catastrophe Losses
Hurricanes, floods, wildfires, tornadoes, winter storms. The frequency and severity of major catastrophes continue to stress the industry. In five of the past six years, these events have caused annual insured losses of more than $100 billion globally1. Last year, total insured losses globally were estimated at a staggering $140 billion.2
2. Reinsurance
Catastrophic events are a major factor driving up the cost of reinsurance — an expense primary carriers need to pass along to customers. At the same time, inflation and the economic environment has been making reinsurers more selective.3 In early 2023 the gap between reinsurance supply and demand was estimated at $60 billion, three times what it was the previous fall.4
3. Underinsurance
Recent inflation has driven the cost of materials and services much higher, but just 43% of business owners say they have increased their policy limits to accurately reflect what it would take to replace insured property now.5 Customers must have accurate valuations for their assets so they don’t come up short after a loss, and premiums will reflect those higher values.
4. Property Replacement Costs
Led by a 55% increase in the cost of structural steel and a 35% increase in the price of lumber, construction costs have jumped over the past three years: Nonresidential is up 36% and multifamily residential is up 32%. Similarly, machinery and equipment costs have increased 18% over the same period.6 Many contractors continue to grapple with materials shortages and supply chain disruptions as well.
5. Skilled Labor Shortage
Nearly half of reconstruction costs are wages and salaries, which have increased 16% over the past three years.7 Even with higher pay, nine out of 10 contractors are struggling to find skilled labor and are delaying projects as a result.8 Higher rebuilding costs and longer delays may trigger an increase in business interruption losses.
6. Property Rate Need
For years, escalating loss trends have outpaced rate increases, primarily because of the costs of catastrophes, severe weather and large fires. Expect carriers to raise rates again this year to close the gap.9
For more Commercial Property Insurance information, contact INSURICA today.
Sources: Travelers
1 Moody’s
2 Gallagher Re
3 Aon
4 Artemis
5 The Harris Poll
6 Bureau of Labor Statistics
7 Monthly Establishment Data – 2019-2022
8 Associated General Contractors of America (PDF)
9 Insurance rates expected to rise again this year
This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
About the Author
Share This Story
Related Blogs
Environmental Liabilities at Agriculture and Farming Properties
The most common environmental and regulatory exposures encountered at agriculture and farming properties include the following:
Addressing Bullying and Cyberbullying
Bullying and cyberbullying remain prevalent issues in schools, posing significant challenges to student safety and well-being. As educators and administrators, it's essential to address these issues proactively and create a safe and supportive environment for all students.
National Work Zone Awareness Week Takes Place April 15-19
The National Work Zone Awareness Week (NWZAW) will take place April 15-19, 2024, in conjunction with National Occupational Research Agenda’s (NORA) Construction Stand-down to Prevent Struck-by Incidents event. In 2021, 956 people died in work zones, according to the NHTSA FARS data. Also in 2021, 108 highway worker occupational fatalities occurred in road construction sites, based on BLS data. Further data is available on WorkZoneSafety.org.