The U.S. commercial property insurance market continues to feel the impact of catastrophic weather and disaster events that have become more frequent, more severe and harder to predict, according to the 2022 U.S. Property Market Outlook by Risk Placement Services (RPS), the excess and surplus (E&S) wholesale broker and managing general agency.

Occurring in atypical regions and/or seasons, such as last February's Winter Storm Uri in Texas and December's tornadoes across the central and southern U.S., expecting the unexpected has become the norm for a market where losses from unanticipated catastrophic weather events have reached into the billions of dollars.

In a quest for profitability, E&S carriers have been shedding unattractive risks, raising rates, lowering coverage limits and adjusting policy terms, the Market Outlook notes.

"Many insurance companies are hoping that those moves will pay off in 2022, but the E&S property market is complex and dynamic," says Wes Robinson, National Property President at RPS. "The uncertainty around catastrophic events means that most will be extremely cautious about how they approach this market."

Robinson believes many insureds will see their rates moderate in 2022, but there will be plenty of exceptions, especially around catastrophe-exposed risks and/or loss-affected accounts.

What insurers generally expect will continue is the warming trend across the U.S., which is driving the frequency and severity of natural catastrophes such as wildfires and tornadoes, the report states.

Given the losses stemming from such events, improved pricing isn't enough of an incentive to keep many reinsurers from cutting capacity. "Climate change is now a strategic concern for many reinsurers as well as commercial property owners," Robinson says.

Beyond Weather Events

Catastrophic weather events add to the myriad other challenges facing the commercial property insurance market, including:

  • Inflationary pressures stemming from the pandemic, which have resulted in increased costs for labor and materials. Supply chain disruptions are extending the time it takes to build, repair or rebuild commercial properties. As a result, many construction projects are running behind schedule, and it's increasingly common for a builders risk policy to expire before a project is completed.
  • Late reporting of claims, which often occurs when there's property damage the insured did not initially discover (e.g., roof damage from hail) or did not realize was covered by their commercial property insurance. This is an issue when a claim is filed after a policy has been renewed, as the new rates won't truly reflect the insured's loss history.
  • Underreporting of property values by insureds continues to be a significant challenge to insurer profitability. With inflation running at its highest levels in 40 years, the gap between what a property was insured for and what it would cost to rebuild it could grow significantly in 2022. This is a common issue in the habitational real estate sector where older buildings that need to be rebuilt to higher code standards often create claims that exceed the policy's replacement cost coverage.
  • Limited capacity and treaty rate hikes from commercial property reinsurers.

Advice for Agents

As property insurance rates continue to rise, retail agents will continue to have tough conversations with clients, particularly those with properties in the growing number of areas prone to damage from convective storms, hurricanes and wildfires.

Robinson suggests that those agents work with a wholesale broker who is experienced with challenging property exposures and has deep relationships with E&S insurers.

"It is vitally important to start the renewal process early to be prepared for the unexpected with a back-up plan," he advises.

Read more in the full 2022 U.S. Property Market Outlook.

Download the Market Outlook