The property market continues to change amid decreased capacity and increased caution among carriers. There is little capacity left among many Lloyds syndicates, and domestic markets are more selective overall—particularly on tougher classes of business. While the first quarter of 2020 may bring some relief on capacity, insureds should expect increased rates, higher deductibles and greater scrutiny from underwriters. Valuations are particularly important along with better data on construction, especially for roofs. In this transitioning market, experienced brokers show their worth in finding the best solutions for clients.
While carriers are still writing business, underwriters are more cautious about dispensing capacity and are more selective on tougher classes or loss- driven risks. Aggregate issues are coming up primarily in Tri-County Florida, Harris County, Texas, and New York City. Some carriers are limiting their Florida capacity to Masonry Non-Combustible (MNC) or better construction. A few carriers and MGA’s are no longer offering flood coverage.
More business is being pushed to excess and surplus carriers as some standard lines carriers continue to either non-renew accounts or drop from ground-up coverage to primary position. As more insurers reserve capacity, many risks that have been written by one carrier, both admitted and non-admitted, on a ground-up basis will likely have to be shared or layered with multiple carriers.
The E&S market is seeing the greatest capacity demands since the aftermath of Hurricane Katrina in 2005. Inside P&C reported, “for both medium and large account business, more respondents are indicating a ‘hard market’ of greater than 10% price increase than at any time since 2003. By line, commercial property, umbrella, and medical malpractice are all indicating the biggest percentage of disruption since the early 2000s." (source)
While 2020 brings new goals and budgets for carriers, they are indicating that they will continue to push rates and even higher deductibles. Terms and conditions may also change and potentially tighten, depending on the class, location, or loss history. After the record loss and devaluation of the Tyndall Air Force Base in the Florida Panhandle, which was battered by Hurricane Michael in 2018, underwriters have placed a major focus on proper valuation for buildings.
FOCUS ON VALUATIONS
Valuations are crucial right now. Building values should be reviewed with insureds to make sure that they are updated and appropriate. Although most insureds share this information, there are occasions when this data is not passed onto the retailer. Building updates are also important, especially for roofs. With carriers now modeling for both coastal and convective wind, roof updates can improve upon terms and pricing. For coastal properties, obtaining the roof anchorage for frame and joisted masonry (JM) construction can be beneficial as carriers will default to either “unknown” or “toe- nailed.” If the roof is actually single-wrap or double-wrap, this could significantly benefit the rating in modeling.
In many cases, insureds should be prepared to consider higher deductibles. On larger schedules, a good option may be to consider stripping out “PML drivers” from the better risks/properties on the schedule. Looking ahead, markets offering parametric coverage are finding the application can be a winner when trying to mitigate the increasing demand of the marketplace for higher deductibles. Parametric deductibles would have the deductible applied by the wind speed of the windstorm event, rather than the event or occurrence. Click here to read more about parametric insurance.
Capacity remains tight in the property market and caution abundant among carriers. Looking ahead, insureds should be prepared for higher rates and deductibles and more intense scrutiny from underwriters. Data is crucial, particularly for valuations and roof construction. In this kind of market, brokers with extensive coverage knowledge, creative planning, and market pull, are ready for the opportunity to navigate this hard market and find the best solution for clients.
Contact your CRC Group producer for more information.