Property insurance buyers can expect higher rates, continued scrutiny of valuations and a push to consider different program structures during upcoming renewals, panelists on a recent Lockton webcast (opens a new window) said.
Although many reinsurers have reported lower claims activity than originally expected in the aftermath of September’s Hurricane Ian, the market remains under significant pressure due to several factors, including some that predate the storm. This has had an effect on primary property insurance markets and will likely pose continued challenges for buyers in the months ahead.
“Ian just added fuel to the fire: For the first time in 10+ years, we have reinsurance demand that’s outstripping reinsurance supply,” said Adam Troyer, a senior reinsurance actuary with Lockton Re. This imbalance between supply and demand is due to several factors, including recent macroeconomic uncertainty and accumulating catastrophe losses in recent years.
During Jan. 1, 2023, reinsurance treaty renewals, four changes were typically required in order for deals to be completed, said Jeff Fleming, a senior broker at Lockton Re. These included retention and attachment increases; significant risk-adjusted rate increases; a shift to named perils coverage rather than all perils, with a specific focus on natural perils; and a focus on inflation and valuations.
These trends in the reinsurance marketplace have naturally carried over to primary markets. “At year-end, we definitely saw an uptick from what we were seeing in early to mid-2022,” said Melissa Klaus, a managing director in Lockton’s Midwest region. “The magnitude of rate increases is really going to be dependent on the specifics of [a] particular account.”
With account specifics dictating individual results at renewal, submission quality and the ability of an insured to differentiate their risk is crucial, especially when it comes to property valuations. “Taking the time to sit with underwriters and tell your story — you can’t quantify it, but I do think it helps move your submission to the top of the pile,” Klaus said.
Although Hurricane Ian and other events will not likely result in major changes in insurers’ approach to analytics, they are likely to play a more significant role in informing buyers’ choices about potential insurance program structures. “Using analytics to think about taking on risk differently is going to be a very big part of how analytics gets deployed in the coming months,” said Scott Johnson, Lockton’s Property and Casualty Analytics Manager.