As property insurance prices continue to rise, the stock throughput segment presents opportunities for relief. While insurers limit or reduce capacity for property coverage, particularly in catastrophe-exposed areas, stock throughput offers more flexibility. That pliability is due in large part to a turnaround in the London market following a hard spell propelled by Lloyd’s Decile Ten profit remediation drive that saw some players exit. Now, insureds may be able to obtain coverage at better terms and prices for stock representing a substantial portion of their exposures. However, stock throughput remains a complex marketplace best navigated with the help of skilled and knowledgeable wholesale brokers.
Rising rates in the reinsurance and retrocession markets continue to push property rates higher even as insurers remain wary after years of large property losses. The stock throughput market; however, is a different story, with London offering a solid alternative to more cautious U.S. markets. With new entrants and much more capacity, the London market has become a bit more aggressive and currently has a broader appetite.
Accounts requiring more creative solutions may also have to look to London. For instance, insureds have been able to obtain better prices for California earthquake coverage and wind-exposed Florida accounts through the London market. In coastal Florida, Louisiana, and Texas, stock throughput may offer competitive, flat deductibles for wind, hail, and named storm, rather than percentage deductibles. London underwriters are also more willing to entertain perishables, such as seafood or meat, and are typically more competitive on soft goods.
Technology plays a role too. The growth of AI-driven underwriting in London has made it easier and quicker to place certain business, including some with Florida named-wind. The algorithmic underwriters have been looking at stock throughput as an opportunity on follow-form policies for excess coverage. The AI underwriting firms are selecting markets to follow and offering quota-share coverage on the same terms with pricing derived from the lead market. AI programs provide a very quick turnaround on quotes but don’t permit deviation from the underlying coverage.
U.S. MARKETS REMAIN WARY
The domestic market offers adequate capacity, but carriers remain more conservative. Some markets are constrained by corporate guidelines on catastrophe-exposed property that prevent them from offering higher limits in stock throughput than on property. Domestically, primary coverage may require a quota-share approach, with the excess placed in London, but domestic carriers offer more flexibility on layered and shared accounts.
Despite a more flexible stock throughput marketplace in general, some sectors remain challenging, including bourbon, distilled liquor, and California wineries, which have seen significant losses in recent years due to wildfire and warehouse collapse. Carriers are particularly cautious around bourbon and liquor aggregations due to the combustibility of the product as well as the industry concentration in the convective storm-exposed areas of Kentucky and Tennessee. That reluctance extends to distillers using frame rickhouses. Bourbon accounts, for instance, may require five to 10 markets. Still, new capacity from London may show interest in risks that can demonstrate well-maintained storage and provide detailed construction information about lightning rods, groundings, berms, and buffers.
Due to several massive wildfires in recent years, California wineries in fire-prone areas remain exceedingly difficult, and expensive, to place. Still, that marks a bit of an improvement as underwriters have become more willing to at least entertain coverage rather than rejecting those risks entirely. Here, technology is also playing a role as some newer entrants utilize analytical tools to better evaluate wildfire scores and exposures as well as longer-term weather trends.
Domestically, perishables and food products remain more challenging as well as stock in retail stores owned by the insured. Carriers have become even more cautious when it comes to insured-owned retail stores, stemming in part from the civil disturbances throughout 2021 that resulted in widespread damage to retail establishments as well as an increase in theft. U.S. retail industry theft losses rose about 4% to $94.5 billion in 2021, according to the National Retail Federation, with retailers reporting organized retail crime up more than 26% on average.1 Theft is also a rising concern among domestic carriers for manufacturing risks in non-U.S. locations, such as Latin America or Asia. Among domestic carriers, some won’t consider a risk without the added value of the international transit exposure, meaning they’re not interested in stock-only nor the shipment of products within the United States alone. London may provide a viable alternative in these instances as well.
STOCK THROUGHPUT RATES MODERATE
Stock throughput renewal rates vary by occupancy but in general range from flat to single-digit increases, which contrasts with the double-digit increases common from 2019 through 2021. Pricing still depends on loss experience: Accounts with losses should expect rate increases. Rate reductions may be available where new capacity comes onto an account, but that also depends on occupancy. Accounts such as heavy manufacturing or a complex stock throughput risk with a catastrophe component may just maintain pricing with new capacity. Buyers looking to save money by scaling back limits should be aware of minimum premium policies in place with some insurers, which may mean that lower limits would not reduce the cost. Overall, account premiums have been moving up in the stock throughput market, but more as a function of rising exposure on increased sales volumes driven by increased consumer spending. This is particularly true for clothing, sports apparel, and shoes following the pandemic-associated slowdown and protracted supply-chain logjams.
Accounts that can provide quality information such as comprehensive data on construction as well as product storage are likely to achieve better results than those without that data. Proactive communication with clients remains critical as many insureds have become frustrated with rising property rates and are choosing to shop around.
The current stock throughput marketplace is opportunistic. Agents should review accounts, considering not only property and transit policies but also whether stock throughput may be a good fit. This strategy can be highly effective as a means of lowering the more expensive property limits on risks including food products, apparel, manufacturing components, and manufacturing on-site. London markets often offer greater flexibility than the domestic marketplace, but navigating these complex markets requires expertise and strong relationships. CRC Group’s knowledgeable brokers are savvy allies often capable of obtaining more cost-effective coverage that serves to strengthen long-term client relationships. Reach out to your local CRC Group producer today.
- Ted Clayton is a Property Broker & Office President of CRC Group’s Santa Ana, California office.
- Farrah Schubmehl is a Senior Vice President & Property Broker with CRC Group’s Chicago office.
- NRF reports retail shrink nearly a $100B problem, National Retail Federation, Sept. 14, 2022, https://nrf.com/media-center/press-releases/nrf- reports-retail-shrink-nearly-100b-problem
- Wildfire Statistics: Which U.S. States Have the Most Wildfires?, Policygenius, December 30, 2022.https://www.policygenius.com/homeowners- insurance/wildfires-by-state/