‘Stable’ is the word most recently used to describe the current state of the commercial property insurance market. Following previous periods of necessary corrective rate increases, commercial property insurance rates are more stable than in recent years. Yet, beneath the surface of rate stability lies a host of challenges that demand continued risk management attention, including the persistent threat of natural catastrophes, including hurricanes, wildfires, and even secondary weather perils and emerging risks posed by innovative technologies like lithium-ion batteries.
As a result, the capacity within the commercial property market is evolving. New market entrants are seeking to establish a foothold in the market. While this influx of new players presents opportunities for property owners, it also creates challenges in securing substantial capacity for high-risk properties. Fortunately, longstanding markets like 色多多视频remain committed to providing robust capacity. For example, 色多多视频provides up to $1 billion of comprehensive coverage for its Platinum Property clients, those that insure 100% of their property risks with AXA XL.
Growing Nat Cat concerns
Intensified natural catastrophes (Nat Cat) remain a significant factor affecting the commercial property insurance market. The 2024 Atlantic hurricane season was notably active, featuring 18 named storms and significant occurrences such as Hurricane Beryl, which marked the earliest Atlantic basin Category 5 hurricane on record. This season became the second costliest on record, trailing only 2017, highlighting the increasing severity and frequency of these weather events.
More recently, losses from the wildfires in the Greater Los Angeles area are expected to range somewhere between $28B and $40B. Many insurers have already been limiting their exposure in California, and these fires will prompt carriers to take a closer look at their exposure in the state.
In response to this heightened risk, insurers are also implementing more stringent underwriting guidelines. The use of advanced data analytics and modeling techniques is becoming increasingly common as we seek to better understand and forecast risks. This approach allows for more accurate pricing and informed underwriting decisions, enabling commercial property underwriters to adapt to evolving market conditions.
An increasing focus on secondary perils
While major hurricanes and wildfire often dominate discussions around natural catastrophes, secondary perils such as severe convective storms, wildfires, and freeze events are gaining significant attention in the commercial property insurance market.
In 2024, the U.S. insurance market has reported 22 losses exceeding $1 billion, with a substantial portion attributed to these secondary risks. For instance, 2024 ended as the second most active year on record for tornadoes, with 1,880 preliminary reports and at least 1,780 confirmed tornadoes. Only 2004 had more tornadoes with 1,817.
As the frequency and severity of these secondary perils increase, commercial insurance markets are likely to adjust their risk assessment frameworks to account for the broader range of threats that property owners face. This shift in focus necessitates enhanced collaboration between insurers and clients to develop comprehensive risk management strategies.
The use of advanced data analytics and modeling techniques is becoming increasingly common as we seek to better understand and forecast risks.
Battery-powered concerns
One of the most pressing concerns in the market is the increased risk associated with lithium-ion batteries. As the adoption of electric vehicles, portable electronics, and renewable energy storage systems grows, the number of lithium batteries in commercial properties is increasing.
Lithium-ion batteries can be prone to thermal runaway, a condition where the battery overheats and can ignite, leading to fires that can spread rapidly. These fires can be intense and difficult to extinguish, posing significant risks to both property and human life. Incidents involving battery fires have been reported in various settings, including electric vehicles, e-bikes, and consumer electronics, raising alarms for underwriters.
This heightened presence elevates the risk of battery-related incidents, making it essential for underwriters to account for these risks in their assessments. Properties that use or store these batteries may face increased insurance costs or may be deemed higher risk. This can affect property valuations and the overall insurability of a property, leading underwriters to require more thorough assessments and possibly higher premiums. In some cases, these property risks may seek coverage from the surplus lines market. (Read Fire and water damage loss trends are driving more property risks to the E&S market to learn more.)
Economic influences
Economically, inflation continues to exert a dominant influence on the commercial property insurance market in North America. The rising costs of construction materials and labor are driving up replacement and repair expenses for properties, creating challenges for both property owners and insurers. As inflation persists, it becomes increasingly critical for insurers to maintain accurate pricing models that reflect these rising costs.
Despite these stabilizing trends, the importance of accurate property valuations cannot be overstated. Many property owners risk being underinsured due to outdated assessments that fail to reflect current market values. Insurers must continue to advocate for regular property valuations to ensure that coverage aligns with the evolving landscape of replacement costs.
Geopolitical events, such as trade disputes, could disrupt global supply chains and economic stability, further impacting construction supply and overall costs. The interconnectedness of global markets means that fluctuations in international trade can have far-reaching consequences, leading to increased uncertainty in the commercial property landscape.
A cautious outlook
Looking ahead, the market outlook indicates a cautious approach, balancing downward pressure on rates with the need for responsible underwriting practices. Insurers must maintain stringent standards in response to the increased frequency and severity of natural catastrophes.
The focus on risk mitigation will be vital, with property risk engineering playing a critical role in helping property owners manage potential hazards, including threats from fire and flooding and boost preparedness for potential natural disasters. By collaborating with clients to implement tailored mitigation strategies, much can be done to assist property owners in reducing the likelihood of incidents or minimizing the severity of any damage that does occur.
