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Here's What to Know About the Hardest Property Market in a Generation

Hardest property insurance market

Many are wondering why the price of property insurance is skyrocketing right now. Insurance buyers are facing the hardest property insurance market in a generation, with historic inflation and natural disaster losses causing “significant pressure,” according to a new report from the American Property Casualty Insurance Association (APCIA).

“The U.S. property casualty insurance industry is facing significant pressure from rising economic inflation, legal system abuse, supply chain constraints, increasing catastrophic weather driving up losses, and historic cost increases for reinsurance and other forms of capital,” said Karen Collins, APCIA vice president, property and environmental. “The combined effects are resulting in the hardest market cycle in a generation. Commercial and personal property lines customers, particularly those in high-risk regions, may feel the effects of recent, elevated cost trends.”

Preparing for Higher Premiums

As you prepare your budget for this year, set aside time to forecast what your insurance premium may be. With the property insurance market hardening, premiums will increase, but the capacity to provide comprehensive coverage will decrease. In times like these, necessary coverage becomes more difficult to find and the power of negotiating premiums diminishes. These impacts can be severe, with premiums increasing from anywhere from 10 to 60% or more.

Hard Property Market Challenges

In a paper titled “Hard Market Cycle Arrives: Inflation, Natural Disasters, and More Straining Property Insurance Markets,” APCIA and Dr. Robert Hartwig, Ph.D., CPCU of the University of South Carolina, outlined the challenges for the market and urged loss mitigation for homes and properties.

Notably, 2022 marked the eighth consecutive year that the U.S. experienced at least 10 catastrophes causing over $1 billion in losses, according to the paper. Preliminary estimates suggest the property market’s combined ratio will reach nearly 108% for the year, and the personal lines market faces a five-year high of $34.9 billion in underwriting losses. Combined ratio, in simple terms, is the value of all paid claims, plus the insurance companies’ costs to adjust their claims.

“Adding to the industry’s financial woes, significant losses since 2017 have pushed the cost of capital to levels not seen since the 2001-2006 period, if not before — a cost that is rippling through catastrophe-exposed markets,” the authors stated. According to reinsurance broker Guy Carpenter, these factors drove the cost of property catastrophe reinsurance up by 30.1% at the start of the year after a 14.8% increase in 2022.

These challenges will likely mean continued rate adjustments in the personal and commercial property lines and potentially stricter underwriting, APCIA warned. Loss mitigation through smart technology, disaster-resistant materials and up-to-date building codes can be “. . . the key to easing the pressure on costs for everyone,” the authors added.

Following Modern Building Codes Can Help Save Money

Research shows that every $1 spent on natural hazard mitigation in new code construction can save $11 in disaster repair and recovery costs, they noted, citing reports from the U.S. Federal Emergency Management Agency (FEMA) and the National Institute of Building Sciences (NIBS). Additionally, FEMA research found that if all new construction followed modern building codes, the U.S. would save more than $600 billion by 2060.

“Insurers believe communities must begin to adapt to growing climate impacts now by adopting and enforcing stronger building codes in high-risk areas. As more communities are hardened, this should result in a meaningful decrease in losses and should translate to more affordable and available coverage for consumers,” said APCIA. Evidence of this could be seen post-Hurricane Ian, according to the report. Communities that rebuilt after 2004’s Hurricane Charley experienced much less damage in the 2022 storm.

Hard Market Help

From an insurance perspective, APCIA advised property owners to consider adding automatic inflation guard coverage, ordinance and law coverage, and extended replacement cost coverage to boost their financial protection. They also recommended that consumers – and their brokers – fully assess policies to determine if they have replacement cost coverage (which does not include depreciation and offers more financial recovery) or actual cash value coverage.

While the continued hardening of the market can seem daunting, your insurance broker can help you understand the current trends that influence the insurance industry and how they can impact your coverage and premiums. Having a solid plan can help you face the upcoming year and budget accordingly. Learn more about protecting your vacation rental business through CBIZ Vacation Rental Insurance; request a free quote.

This blog may contain scenarios that are provided as examples only. Coverage is subject to the terms, conditions and exclusions of the policy issued. The information provided is general in nature and may be affected by changes in law or the interpretation of such laws. The reader is advised to contact a professional prior to taking any action based upon this information.

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