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Increasing Property Premiums – Causes and Ways to Prepare

By July 27, 2021Insurance
Written by Peter Normand, Real Estate Practice Group Leader

I have been observing premiums on property increasing over the past year. As in all industries, there are market cycles in the insurance industry and we are certainly in a hard market at the moment. During a hard market-cycle, we see decreased capacity and appetite for risk from insurance carriers, which results on the consumer end in an increase in insurance premiums. According to Marsh – the company that tracks the global insurance market and creates quarterly price indexes – property premiums globally increased 20% in the fourth quarter of 2020 and 15% in the first quarter of this year. Marsh has reported that, on average, all commercial insurance prices increased 18%: property, casualty, professional.

Thankfully, the increases I have been seeing aren’t as high as those reported globally. I’ve seen an 8-10% increase on property and liability policies in the real estate investment space, for loss free accounts. Some of the dampening of those increases is due to our agency’s ability to place business with strong regional insurers. The northeast has largely been spared the wildfires, tropical storms, and other disasters that have ravaged areas of the country. However, the unusual heavy rains this month have gotten me thinking about flood policies, as water is largely excluded as a property coverage. Additionally, increasing costs of construction are impacting the building limits specified in the policy, with many carriers requiring higher per square foot costs than previous years so that properties are adequately insured to value.

Market forces are increasing premiums and those increasing premiums are eating into property owners’ bottom lines, so what can be done? As I mentioned, regional mutual insurance companies continue to be strong markets for commercial and habitational risks. These carriers are looking for a good loss history, system updates in the last 20 years, upkeep, contracts with sub-contractors, and not student-specific housing. Premiums for these carriers can be up to 1/3 less than surplus lines carriers, which is where properties can end up when they have a large number of losses or fail to adhere to recommendations. Thus, having a good strategy for loss control including risk transfer, a safety plan, and maintenance schedule can help you get ahead of risk to limit the use of your insurance policy, and keep your premiums under control.

There is no shortage of good techniques for managing risk and operational improvements to help control costs. We at Webber and Grinnell can help you with everything from the policy, to the design of your risk management plans. How can I help you today?

Peter Normand
(413) 570-1964