Commercial property insurance rates continue to rise around the globe, but there has been an evident deceleration in recent months. However, properties exposed to secondary catastrophe perils continue to see above average increases, according to broker Marsh.
As we’ve explained before, the catastrophe exposed end of property insurance has been seeing some of the most significant rate increases of all, as insurance and reinsurance capital continues to express a need for higher returns to make underwriting this kind of business more profitable.
While the overall commercial insurance market’s rate trajectory is slowing somewhat, which has also been seen in property insurance pricing, which has decelerated each month this year from 18% gains in January down to 7% gains in June, the catastrophe exposed segment continues to hold up.
In Q2 2021, broker Marsh reports that commercial property insurance pricing in the US rose by 9%, which is the fifteenth consecutive quarter of gains.
Those compounding rate increases, quarter-on-quarter over recent years, have driven rates far higher, so a slowing of increases was inevitable, as rates can only rise so high before affordability becomes a question.
But, given the continued losses suffered by the insurance and reinsurance industry from catastrophes, in particular those driven by so-called secondary perils, properties exposed to these risks are still seeing some of the steepest increases it seems.
“Clients with significant losses, poor risk quality, or significant exposure to secondary catastrophe (CAT) perils generally experienced above average increases,” Marsh explained.
Reflecting the concerns over secondary peril contributions to annual losses, as well as climate change, Marsh also noted that, “The market deteriorated for clients heavily exposed to wildfire.”
Property rates in US commercial insurance have been on the rise since Q4 2017, right after the particularly impactful hurricane season of that year.
Wildfires followed, as well as convective storm losses, flooding and other peril events, which served to amplify rate increases over the next few years, while heightened uncertainty created by the pandemic also seems to have been a factor over the last year and a half.
The end result are property insurance rates at a far higher level, after the compounding has been accounted for.
Right now, these rates continue to rise as well, albeit at slower pace, apart from in the loss exposed and catastrophe exposed zones where acceleration is still possible, it seems.
Interestingly, the only area of the world where property pricing, on average, was seen to accelerate across the board in Q2 2021, was in Europe.
As a result, it will be interesting to see what happens for Q3, given the significant flood losses seen in European countries over recent weeks.
It appears that overall, commercial property insurance rates will continue to broadly rise, although at slower paces than seen earlier this year.
Which will be pleasing for those further along the market risk chain, in reinsurance capital, as these insurance rate rises should help to support reinsurance pricing for a time.
Lucy Clarke, President, Marsh Specialty and Marsh Global Placement, commented, “Clients continue to face a challenging risk and insurance landscape as the global economy emerges from the pandemic. Although we expect continued pressure on pricing, especially in loss affected lines, we also expect the general trend of moderating price increases to continue through the rest of the year.”