Managing Property Insurance Volatility

Property Insurance Renewals in the New Year

As the year-end approaches, business owners, executive leadership teams, and finance personnel should consider ways to mitigate significant cost increases and ensure adequate coverage for their property insurance renewals. The insurance sector faced serious concerns about reinsurance pricing and available capacity prior to Hurricane Ian, whose devastating impact intensified those concerns and will likely accelerate rate increases, and drive reinsurance costs, which will affect the insurers’ ability to meet industry demands in 2023.

Property reinsurance treaties renewing in January are anticipated to be costly, but as reinsurers allocate their capacity and use new strategies to optimally manage capital after the first of the year, the effects will continue to significantly impact treaties set to renew later in 2023 and beyond. A one-size-fits-all approach is no longer a viable solution for insurance agents and brokers who seek the best results for their clients. The experts at Lyons Companies will help review your property insurance program and identify custom strategies—such as ensuring you have most up-to-date valuation data—to implement during negotiations to protect your company’s bottom line.  

Convergence of Factors Create an Unusual Marketplace

Certain reinsurance service lines are experiencing a return to “normal,” but the recovery property markets are anticipated to take longer due to the significant impact Hurricane Ian and other catastrophic occurrences have caused. Losses for Hurricane Ian alone are projected to be as high as $60B. Beyond economizing to offset catastrophe losses, reinsurers are also facing a convergence of factors that compound the marketplace issue, including:

• marked geopolitical pressure;
• impacts to balance sheets from investment write-downs;
• extreme shortfalls in global and U.S. property catastrophe capacity;
• skyrocketing construction-related costs;
• carriers exiting the marketplace; and
• an inflation-driven surge in demand from insurers in a rapidly hardening property market.

To help offset these factors, the insurance marketplace has taken a stronger stance on obtaining proper valuation of assets before issuing property treaty renewals. Insurers and underwriters have become much more vigilant when verifying property values and examining valuation and rate adequacy to ensure they’re quoting adequate premiums. Where stated property values misalign with current estimates, buyers can expect to see higher rates to compensate for the additional exposure reinsurers may incur. 

How We as Risk Advisors Can Help

Insureds with high-risk property portfolios should be prepared for property treaty negotiations to begin with renewal rates as much as 30% or higher than current rates due to the aforementioned convergence of the marketplace factors. Rates will also be affected by how inflation was factored into the previous property renewals and how well insureds have mitigated Insurance to Value (ITV) concerns on portfolios. We can help our insureds obtain the best possible results by developing a data-based narrative to support reported values. Many insureds haven’t commissioned a property appraisal in three or more years due to pandemic-related ramifications, but proactively providing the most current valuation data in advance of a renewal yields better results in terms of premiums and the marketability of a placement. This is especially important as rising inflation may prompt cedents to purchase more reinsurance coverage than previous years to fully protect their assets against future damage.

We also add value to our client relationships by educating policyholders about every facet that affects their total coverage costs. Our team will review each client’s assets and particular needs to explain how the nuances of the 2023 marketplace, rising inflation, higher ITVs and growing exposures affect rate and premium amounts.

Contact Lyons Companies

Our expertise can help organizations successfully navigate this unusual marketplace. Timing, data transparency and collaboration with high-quality partners will be the key to success in 2023.

Contact us at 800.456.5508 to discuss your company’s specific situation and explore ways we can help mitigate property renewal costs to protect your bottom line.