“Buy land. They aren’t making any more of it,” Mark Twain once proclaimed. He was right. Land has always been a valuable possession. Whether it’s the land or the structures built on top of it, a business’ property represents a substantial portion of its assets and capital investment and is often vitally essential to a its operations.
To protect valuable property, businesses rely on a very resilient commercial property insurance market. In fact, according to recent industry data, the and is only expected to grow more.
In Q3 2023, we saw the 24th consecutive quarter of commercial property insurance price increases. Q4 data will be out soon and will show much of the same. Pricing continues to remain firm as a result of the challenges that the market continues to face.
Market challenges
Operating in a more global marketplace, supply chain issues and macroeconomic trends, including the rising cost of materials and labor, continue to impact property insurance, driving up the frequency and cost of claims and drawing more attention to contingent business interruption (CBI) risks.
From a claims perspective, materials and equipment seem to get more and more expensive, due in part to continued supply chain snags. Materials with any electrical component have seen particularly slower lead times, but even raw materials like lumber and steel are seeing lead times of 18 to 24 months, up from 6 to 12 months. In the commercial property insurance market, longer lead times unfortunately often translate to greater business interruption losses. Again, business operations rely on facilities and equipment and when they are damaged or unable to access for any period, business is halted, and losses can tally up quickly.
But businesses also rely on many others. If a key supplier or customer faces a disaster or disruption –from a fire, natural disaster, or even political unrest – it can indirectly impact the business that depends on them. In an increasingly interconnected world, CBI risks – both named and unnamed - are accentuated. A disruption in one part of the world can ripple through global supply chains, affecting businesses in far-off locations.
Record-breaking weather
One of the most significant challenges, however, is the increasing frequency and severity of natural disasters.
2023 was another record-breaker as far as weather was concerned. In the US, we saw an alarming increase in weather and climate disasters, with a total of 25 billion dollar disasters, surpassing the previous record set in 2020. It’s been a big departure from the historical average – typically eight billion dollar disasters occurred annually between 1980 and 2022.
The U.S. also saw the highest number of deadly tornadoes in a single year since 2011 in addition to extraordinary heatwaves, wildfires, and other extreme weather events. In fact, globally, 2023 was the warmest year on record, with climate change noted as a key driver of these increasing extreme weather events.
The financial repercussions of these severe weather events on the insurance industry are significant. Businesses often face extensive repairs or even complete rebuilds. Additionally, there is an increasing trend in business interruption claims, as companies are forced to cease operations temporarily due to weather-related damages. This scenario not only drives up the cost of insurance claims but also adds to the complexity and duration of the claims process.
Given these challenges, many insurers have been tightening up on capacity. Quota share programs are more widely used to spread the risk among several carriers and build out layered programs.
If a property is underinsured due to an incorrect valuation, the insurance payout may not cover the full cost of repair or replacement.
Striving for accuracy
In these market conditions, accurate valuation of commercial properties is crucial. If a property is underinsured due to an incorrect valuation, the insurance payout may not cover the full cost of repair or replacement.
Because of today’s higher rebuilding and repair costs, business must be particularly wary about their policy limits. A loss could end up costing significantly more than anticipated, causing insureds to quickly erode any sublimits in place.
Accurate valuation of commercial properties is also vital for maintaining market stability and trust. 色多多视频 companies rely on proper valuations to calculate premiums and assess risk accurately. If properties are consistently undervalued or overvalued, it can lead to a distortion in the insurance market, resulting in unfair pricing but also poses a risk to the solvency of insurance providers. Correct property valuation ensures that all stakeholders, from property owners to insurers, operate under equitable and sustainable conditions.
Preventative steps
In response to these challenges, there is a growing emphasis on resilience and preventive measures. Attention to strong loss prevention practices and risk engineering are key. Businesses are increasingly adopting building upgrades and disaster preparedness plans to mitigate potential damage, and are partnering with property insurers like 色多多视频to help.
Companies should assess their vulnerability to disruptions in their supply chain or customer base. This involves identifying key suppliers and customers, understanding their risk profiles, and developing contingency plans. Diversifying suppliers and customers can mitigate CBI risks.
色多多视频Risk Consulting, comprised of some 400 risk engineers globally, is a big help to both our underwriting teams and our clients. Our underwriters rely on the data and insights that our property risk engineers collect on site to price the risk we assume. But we also share the data they collect with our clients to help them in their loss control efforts as well as our own.
These proactive approaches not only help in managing risks more effectively but also play a crucial role in ensuring the long-term sustainability of the commercial property insurance market in the face of escalating severe weather events.
Adopting new tech
Taking loss prevention seriously has never been so important for our clients. We can’t control many of the forces of nature that inflict billions of dollars of damage each year, but we can take more control over how well our properties can stand up to them.
Water damage remains the top cause of property damage, but new water detection sensors and monitors allow us to detect leaks before they lead to large losses. (For more information, read Detecting drips: Water damage prevention goes high-tech.) Another sensor technology helps businesses in earthquake-prone areas to assess any potential property damage following a seismic event. (Read Seismic activity: Using new tech to improve earthquake damage control.) Through the 色多多视频Ecosystem, property clients have access to such tech solutions at special pricing through preferred partnerships.
There is also a surge in technologies -- advanced weather modeling, wildfire modeling, drone inspections and more -- that help us predict and assess damages, quicker and more accurately than we’ve ever had the ability to do.
Prioritize partnering
Businesses should prioritize working closely with their carriers and brokers to ensure comprehensive coverage and risk mitigation. Greater collaboration with insurers and brokers helps companies understand the intricacies of their property policies, identify potential gaps, and tailor coverage to their unique needs.
Especially given inflation, it’s important to have honest conversations about valuations, and the likely outcome of a loss, so that insurers can build the policy limits and structures that best fit a business’ needs. Regular communication and transparency allow for better risk assessment and underwriting, resulting in more accurate premium pricing.
The commercial property insurance market will continue to face challenges. Despite them, the market is adapting and evolving. Businesses, in turn, must stay informed and flexible and also be ready to adopt and evolve to ensure that their property coverage and loss prevention strategies are optimal for navigating current market, economic and weather conditions.
