Navigating the 2024 Commercial Property Insurance Market: Property & Casualty

Since 2017, the commercial property insurance market has demonstrated persistent premium increases.

Although there were indications of rate moderation in 2022, predominantly within single digits, it proved temporary. Industry data shows a substantial surge in Ql 2023 premiums at an average 20.4 percent increase. This marks the first time in two decades that the segment experienced average rate hikes above 20 percent. The latter half of 2023 sustained this upward trend, registering the highest average premium increases of commercial coverage at 18.3 percent.

Current market challenges can be attributed to a combination of factors including an intense natural disaster season, inflationary pressures and a volatile property valuation landscape. The resulting losses have compelled commercial property insurance carriers to consistently raise policyholder premiums and implement more restrictive coverage terms. Insureds conducting high-risk operations, with inadequate property management practices or located in disaster-prone areas should anticipate ongoing rate hikes and coverage limitations (i.e., wind/hail deductibles & cosmetic damage exclusions)

Trends Shaping Commercial Property Insurance

Addressing Climate Challenges

The commercial property market faces a formidable challenge from the escalating frequency and severity of extreme weather events. Bloomberg Intelligence reports that 2023’s global insured losses from natural disasters will surpass $100 billion for the fourth consecutive year. The U.S. alone experienced a record number of billion-dollar weather and climate events, incurring costs exceeding $57 billion.

Severe convective storms (e.g., thunderstorms, tornadoes, hailstorms) accounted for 68 percent of all weather-related losses in the first half of 2023, resulting in a financial impact of $35 billion. Climate experts predict that ongoing natural disaster patterns will further amplify the adverse impact on future commercial property losses.

Inflation-Driven Premiums

The surge in inflation has contributed to heightened commercial property premiums and increased claims expenses. While inflationary pressures have subsided since peaking in 2021, building material costs show no signs of decelerating. Notably, there was a substantial increase in building material prices in 2023, exceeding 10 percent, particularly in wood and steel expenses (over 15 percent). Further, the construction industry experienced notable wage growth, with an annual rate of 4.4 percent, compared to 3.6 percent in 2019. As inflation continues into 2024, businesses may encounter potential underinsurance concerns.

Outdated property valuations could cause reduced claim payouts and coinsurance penalties, ultimately leading to larger out-of-pocket expenses.

Prioritizing Accurate Property Valuations

Amid highly volatile building material prices, accurate property valuations assume a crucial role. Insurance professionals stress the importance of meticulous insurance-to-value (ITV) calculations to ensure adequate coverage. Recent industry research reveals significant inaccuracies in many ITV calculations, with coverage gaps exceeding 30 percent. To mitigate these inconsistencies and ensure sufficient coverage, organizations are advised to leverage the replacement value of the property. This involves estimating the current cost to replace or rebuild a property, considering factors such as material and labor expenses, architectural services, debris removal and building permits. Employing methods like property appraisals, adjusted fixed-asset records or basic benchmarking tools can assist in achieving more precise calculations.

Strategic Tips for Commercial Property Insurance Buyers

  Continuous Maintenance: Keep your commercial property in optimal condition by promptly addressing any building issues. This helps prevent insurance claims, demonstrating a commitment to proactive property management and risk mitigation.

  Controlled Disaster Exposure: Evaluate natural disaster exposures specific to your organization’s commercial properties. Implement mitigation and response measures to protect your property should an event occur (e.g., install storm shutters, utilize fire-resistant roofing).

  Precise Property Limits: Review and adjust your organization’s commercial property limits to avoid underinsurance and coinsurance penalties. This involves updating total insurable values and conducting accurate ITV calculations.

We’re Here to Help with Commercial Property Exposures

Experts predict a five percent to 25 percent increase in commercial property insurance premiums in 2024. Our team is here to help you understand the current commercial property insurance market, empowering you with risk management strategies to protect your organization. If you have questions about your commercial property insurance coverage or the status of the market, connect with Brad Schmid at CBIZ, or (763) 549-2247.

Want more? Check out the June 2024 issue of AASP-MN News!