Commercial property claims up, but demand increasing, capacity rising

The US commercial property insurance market has always been a good bellwether for broader conditions across insurance as well as reinsurance and after a catastrophe heavy third-quarter of 2021, the dynamics in that market continue to get more interesting.

As we’ve been documenting, rates for the catastrophe exposed areas of property insurance, as well as the regions most loss affected in recent years, are already facing the steepest price increases and contractions in available capacity, plus tightening of terms.

The last few year’s of catastrophe losses in the United States has brought secondary peril events firmly into focus as well, with the industry grappling to come to terms with its losses from them and to price its risks appropriately to cover such exposures.

New data from the Council of Insurance Agents and Brokers (CIAB) on commercial property insurance trends suggests that, alongside the issues around catastrophe exposure, this marketplace could be in for some interesting dynamics, even as rate acceleration has slowed a little in recent quarters.

The CIAB’s latest data on the commercial insurance market shows a 10.3% quarterly rate increase for commercial property in Q3 2021.

That’s slightly up on Q2’s rate environment, but down on previous quarters.

But these still “notable premium increases” also came with reports of “tightening capacity, increased deductibles, and additional coverage restrictions,” the CIAB explained.

As you might expect, following a quarter when a major catastrophe event like hurricane Ida occurred, reports of increased claims being recorded in US commercial property insurance nearly doubled year-on-year in Q3.

That will likely drive some ongoing effects in the market over coming quarters, as insurers come to terms with their losses and could also drive more increases across the wide area affected by Ida’s footprint, with ramifications for reinsurance pricing as well.

Meanwhile, on the demand side, 48% of market participants reported experiencing increased demand for commercial property insurance, up from 38% in the prior quarter.

Where things get interesting are in terms of capacity now, in light of increasing claims and demand.

Market participants told the CIAB that capacity continues to be limited in some areas, but a shrinking number of respondents are now reporting a decrease in underwriting capacity quarter-by-quarter over 2021 so far.

A year ago, 79% reported decreased commercial property insurance capacity being available in Q3 2020, but that figure has dropped steadily to just 49% in Q3 2021.

What does that reflect?

New entrants in 2021, particularly in E&S property risks, as well as increasing appetites from major players as property insurance rate increases compound.

Does that mean the opportunity is waning?

Well not if you’re targeting catastrophe exposed property risks or regions affected by secondary peril events it seems, where rates are still rising sharply and the most onerous terms and reductions in capacity are seen.

Suggesting, those who can absorb cat exposed property into their portfolios, or work with reinsurance capital that targets the space, may continue to find opportunity, while the rest of the commercial property space might begin to tighten (if trends continue).