What Commercial Property Factors Are Affecting Insurance Prices?

The commercial property insurance industry continues to remain competitive. There are a number of contributors to the rise in commercial property insurance premiums.

Devastating Losses

The frequency and severity of extreme convective storms, tornadoes, hail, floods, wildfires, hurricanes, and winter storms continue to increase at an unprecedented rate. In the United States, 86 instances with losses over $1 billion each have occurred over the past five years. There were 20 such events in 2021, compared to 22 in 2020, which set a new yearly record. In 2021, global insurance losses from natural disasters totaled $130 billion, with the United States bearing responsibility for $92 billion.

Costs of Property Replacement

Over the last five years, building prices have risen by 28%. Total non-residential reconstruction expenses grew by 16.5% in 2021, driven by a 51.0% increase in structural steel and a 22.7% increase in lumber. Similarly, replacement prices for machinery and equipment have climbed by 8.5% over the same time period. If a corporation experiences a loss, it is crucial to have adequate insurance coverage limits to cover escalating replacement expenses.

Skilled Labor Shortage

Pandemic-caused construction project delays and material shortages, coupled with supply chain failures and a continuous dearth of experienced employees, are increasing the time and cost required to reconstruct. According to recent data conducted by the Associated General Contractors of America, 89% of contractors reported difficulty filling vacancies.

Underinsurance

75% of commercial enterprises are expected to be underinsured by an average of 40% or more. Due to inflation and supply chain concerns, building materials and labor costs are rising at unprecedented rates, making it imperative for property owners to have current and accurate insurance valuations to cover replacement costs.

Reinsurance

Major catastrophes have increased reinsurance costs over the past five years, and this tendency is expected to continue. Increased treaty and facultative reinsurance expenses contribute to the increase in property insurance premiums.

Need For Property Rate

While the sector has experienced rate and terms and conditions changes for property exposures, the line's profitability remains an issue, necessitating a continual demand for rates. This is a result of the industry's developing understanding of risk resulting from years of increasing catastrophe events, rising attritional (non-catastrophic) weather losses and an increase in the frequency of significant fires. It is anticipated that rate hikes above the loss trend will continue.