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How to Navigate the Property Market for Habitational and Hospitality Buyers

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Increasing insured losses due to climate change, COVID-19 and social upheaval are making 2021 property insurance renewals especially challenging for habitational and hospitality real estate owners.

Virtually every habitational and hospitality account will be impacted by the firming property market, whether through higher premiums, less capacity, stricter terms, or all three, according to the 2021 U.S. Property Market Outlook.

Capacity will be especially tight for buyers in regions of the country susceptible to wildfires, hurricanes and tornados, requiring many to layer coverage from multiple carriers to get the excess limits they need, the report said.

Up-to-date property valuations will be essential to obtaining high excess limits.

Higher reinsurance costs also are affecting capacity, pricing and terms in the commercial property market, according to Wes Robinson, National Property Brokerage President.

He said insurers paid upwards of 10% to 15% to renew their treaties at year-end 2020 after having been hit with even larger increases at midyear.

While there is sufficient capacity in the E&S marketplace to meet the needs of habitational and hospitality market buyers, retail brokers should prepare these buyers for rate hikes of 20% or more. In some cases, these buyers may decide to buy less excess coverage to avoid a premium increase.

Brokers also should discuss with property owners any recent exposure changes and the steps they’ve taken to mitigate those risks so they can present their cases to underwriters in the best light possible.

  • Was a hotel property converted into temporary housing for medical staff or patients requiring quarantine?
  • Are any properties sitting vacant, putting them at increased risk of vandalism, water damage or break-ins?
  • How are vacant properties being protected and maintained?
  • Are lower occupancy rates affecting income?
  • Should projections for potential business interruption costs be adjusted accordingly?

“The best advice we can offer customers at this time is to convey as much information as possible about what operations have ceased at their respective properties and what operations are ongoing,” said James Rozzi, Executive Vice President at RPS.

“We continue to spend a lot of time working with clients on accurately measuring their BI for the last 12 months and projecting that forward as the COVID pandemic evolves. If they have not adjusted figures as a result of the pandemic, then they are probably overpaying for coverage they would never get in an actual loss-sustained claim scenario,” he noted.

To ensure their models accurately predict potential claim costs, underwriters also are seeking more detailed information on the condition of habitational and hospitality properties, such as age of roofs, electrical/plumbing/HVAC upgrades or other improvements, and weatherproofing.

While it remains to be seen whether COVID-19 will disrupt the supply chain for building products, surge pricing almost always follows a natural catastrophe.

And if the past few years are any indication, hurricanes, tornadoes and wildfires will continue to plague the nation as climate change disrupts historic weather patterns.

“There is no doubt that the costs of rebuilding are increasing,” said David Novak, Area Vice President. “Markets are aware of it and are trying to adjust to it. They are seeing inflation of losses. After big natural catastrophes, we have seen prices rise for labor and materials.”

Although it’s pretty much a given that insurers will add communicable disease exclusions to property policies in the wake of COVID-19, it’s also important to watch out for riot exclusions and restrictions on time element and mileage distance for ingress/egress coverage, especially on classes of business vulnerable to business interruption losses like dine-in restaurants and those with storefronts.

In all renewal discussions with clients, agents and brokers should clearly explain how any changes in the amount and types of risk they assume will affect their attractiveness to underwriters as well as the premium they will be charged.

Providing examples of potential claim scenarios may be especially useful in helping clients understand the financial impacts of coverage changes.

Ultimately, the firming property market provides an opportunity for agents and brokers to advise their habitational and hospitality clients on the benefits of risk management to reduce their exposure and to verify that they are buying appropriate coverage limits.

Experience and relationships still matter in today’s market, maybe now more than ever. Independent agents and brokers should choose a wholesale broker with a solid track record and longtime relationships with underwriters. Seasoned wholesale brokers who have experienced the market’s historical ups and downs know how to negotiate and structure placements to make them more affordable.

View the 2021 U.S. Property Market Outlook

 

 

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