Property rates fall; market awaits wildfire claims

Commercial property insurance policyholders saw continued rate relief at year-end renewals as capacity expanded, fueling more competitive market conditions.

But loss-affected accounts, certain types of occupancies and properties prone to wildfire and severe convective storm exposures continue to face difficult renewals, brokers say.

Wildfire coverage – already tough to place – will be even more costly and challenging due to the wildfires in Los Angeles. It’s too soon to know how the loss will affect the broader market, they said.

Latest estimates peg insured losses from the disaster at more than $20 billion, and overall economic damages at between $135 billion and $150 billion.

“This will likely be the largest California wildfire in history from an economic and insurance industry loss perspective,” said Martha Bane, Glendale, California-based senior managing director of the North America property practice at Arthur J. Gallagher & Co.

The loss will be “manageable” for insurers and reinsurers but will likely make it more challenging to secure wildfire coverage at reasonable rates, she said.

Rates soften

Property rates saw a “selective softening” in the third and fourth quarters of last year, driven by increased capacity. Gallagher is seeing mid- to high-single-digit increases on average, Ms. Bane said.

The market returned to profitability last year, and insurers looked to expand their property lines, said Vincent Flood, New York-based U.S. property practice leader at Aon PLC.

“Markets were looking to write more of what they know and trying to increase their lines on renewals. We found ourselves to be 50% to 100% oversubscribed,” he said.

The average rate change on Aon’s property book was a 1.91% decrease in the third quarter, following a 0.94% decrease in the second quarter.

For desirable occupancies and natural catastrophe-exposed accounts, rates were flat to down 15%. Less desirable accounts were flat to down 10%, based on Aon’s third-quarter 2024 data.

Rate reductions accelerated through the fourth quarter, Mr. Flood said. “The market is softening fairly quickly,” he said.

Softer occupancies and best-in-class risks, covered via shared and layered programs, including accounts with catastrophe exposures, saw double-digit rate decreases at year-end renewals, said Michael Rouse, New York-based co-global placement leader U.S. and Canada at Marsh LLC.

“Some of that’s maybe a correction of the rate inflation that occurred over the past couple of years, but certainly it’s a very competitive marketplace for that subset of our business,” Mr. Rouse said.

The market is still looking for flat to single-digit increases for single-insurer business, but competition is building, he said.

Property rates fell 1% on average in the third quarter, compared with a 2% increase in the prior quarter, according to Marsh’s quarterly pricing index. “We anticipate that trend is going to continue,” Mr. Rouse said.

The market is “more orderly,” but there are still pockets of disruption, such as wildfire and severe convective storm risks, that are difficult to place, said Jeff Buyze, Orlando, Florida-based vice president, national property practice leader, at USI Insurance Services LLC.

Capacity

“Carriers are very cautious about how much capacity they’re putting out and also the types of deductibles that they’re offering,” Mr. Buyze said.

Reinsurance treaties have pushed up attachment points, so primary insurers are trying to insulate themselves from mid-level cat events, “the $1 billion, $2 billion clips” from tornado, hail, straight-line winds, he said.

Frame habitational properties and senior housing, depending on risk quality, can also be difficult, Mr. Buyze said.

Accounts with poor loss experience will likely see rates increase by 5% to 15% in the first half of this year, compared with 10% to 20% increases in the second half of 2024, USI said in a report issued last week.

The property market had a less eventful year in 2024 after the turmoil of the prior five or six years, said Christie Weinstein, New York-based director, risk management, at Honeywell International Inc. and a Risk & Insurance Management Society Inc. board director.

Hurricanes Milton and Helene primarily hit residential property exposures rather than commercial property, she said.

Honeywell’s property program renews May 1 and saw its worst rate increase in five years at last year’s renewal. This year, more stability is expected, with potentially flat rates, Ms. Weinstein said.

Honeywell is a diversified global company with 700 locations worldwide that is attractive to many insurers. “We haven’t had issues getting capacity,” Ms. Weinstein said.

Middle market

Grace Ries, Chicago-based head of property, U.S. middle market, at Zurich North America, said rate moderation continues based on industry segment and specific occupancy.

“We are still seeing rate increases overall in our middle-market book,” she said.

Tougher occupancies or properties in geographic regions prone to hurricanes or severe convective storms are seeing steeper rate increases, Ms. Ries said.

Property owners that invested in building resilience, made risk improvements, and addressed insurance-to-value in the past couple of years are seeing “very favorable rate,” she said.

Nationally, market conditions are favorable for well-diversified, urban, and highly protected commercial real estate, but rates for non-sprinklered wood-frame construction are higher, said Jonathan Naranjo, San Francisco-based head of real estate at Newfront Insurance Inc.

“Those rates can average between 30, 40, 50 cents per million dollars, as opposed to a class A building that’s getting a six to seven to eight cent property rate. That’s a huge differential in terms of premium,” he said.

Effective risk mitigation strategies, such as updated emergency response plans and investing in internet-connected devices like water detection systems, can make insurers more comfortable with risks and help clients manage insurance costs, Mr. Naranjo said.

Interest in alternative risk transfer, such as captives, parametric coverage and structured solutions, shows no signs of slowing down even with improving market conditions, brokers said.

Parametric coverage in certain circumstances can be a good alternative for clients, said Carl Smith, national property practice leader at Risk Strategies Co. Inc. in Boston.

“There’s a perception that it’s the silver bullet, it’s the way around the year-over-year increases in traditional cat capacity, which it is not, but it can be an effective tool as part of an overall property risk management strategy,” Mr. Smith said.

Increased use of alternative risk transfer, such as structured risk solutions, has created additional competition within the primary market, Mr. Flood said.