Jan 2022 – COMMERCIAL PROPERTY – Factors that are pushing the insurance rates higher


COMMERCIAL PROPERTY insurance rates are continuing to climb, as the segment faces a number of headwinds that have pushed claims costs to new heights.
A number of factors are affecting rates, including the frequency and severity of extreme weather claims. the cost of rebuilding, rates for commercial properties not keeping pace with claims costs, and more.
The end result has been a steady increase in property rates across the board, but businesses with operations in areas that are more susceptible to natural disasters are seeing the highest
increases.
As a business owner with commercial property, you’ve probably already seen rates increase, and you should be prepared for further rate hikes in the coming year. Here are the main drivers of these increases.

 

Mounting natural catastrophes

The number of natural catastrophes hitting the U.S. continues increasing as does the cost of those disasters, which are affecting more properties around the country.
Depending on the part of the nation a property is located it can be exposed to hurricanes, wildfires, tornadoes, hail, flooding and more.
There has also been an increase in civil unrest, which often results in property damage to businesses.
Insured property losses in the U.S. hit $74.4 billion in 2020, the second-most expensive year on record.
Also, last year set the record for the most major natural catastrophe events to hit the U.S. in a single year (22 of them).
Five of the 10 most expensive catastrophe years for the insurance industry have occurred since 2011.

 

Reconstruction costs

Reconstruction costs have skyrocketed during the past five years, averaging 5% a year, according to the Associated Builders and Contractors analysis of Bureau of Labor Statistics data.
Lumber prices rose by 73% between April 2020 and July 2021, greatly increasing rebuilding costs. On top of that, iron and steel products jumped 15% in price during the same period, and steel mill products by nearly 7%.

 

Construction labor shortage

The construction industry faces a serious labor crunch. And many firms have backlogs that stretch out more than six months.
According to the U.S. Chamber of Commerce Commercial Construction Index, this shortage is leading to real-world setbacks for contractors:

• 68% of contractors say they are asking workers to do more work.
• 56% report a challenge in meeting project schedules.
• 50% of contractors are putting in higher bids.
• Over a third (35%) report turning down work due to skilled labor shortages.

 

Property rates are inadequate

Despite the fact that rates have been increasing for the last five years, insurers are still struggling to keep up with the rapidly rising cost of claims as well as the number of claims they are seeing.
Those factors have made it difficult for the industry to peg pricing at the right level, resulting in a string of losses in property insurance for most carriers.
As the industry struggles to get back to profitability, insurers will have to continue boosting rates.

 

Reinsurance rates

A portion of the property insurance rate gains can be attributed to insurance companies dealing with higher reinsurance costs.
Insurers buy reinsurance to pass on claims costs from catastrophic events, in order to reduce their overall risk.

 

The takeaway

There are some steps that businesses can take to try to affect their premiums.
If you have an older building, you can replace your mechanical, electrical and plumbing systems with newer, code-compliant variants.
Safeguard your building against location-specific hazards (for example, creating a defensible space and using fire-resistant roofing in wildfire areas and upgraded cladding in hurricane areas).
Also, electrical fires are the number-one cause of property damage, so you should consider installing fire-protection systems such as sprinklers and fire hose cabinets.


July 2021 – Non-Admitted Carriers – The Option When No Insurers Will Cover You


SOME BUSINESSES are finding fewer insurers willing to write their policies for certain types of coverage that are seeing rapidly rising claims costs, particularly in liability lines as well as property insurance in areas with exposure to natural catastrophes.
When no insurers that are licensed in California are willing to write a policy, we as your agent have to go to another market made up of insurance companies that are not licensed or regulated by the state.
It’s called the surplus lines (or “non-admitted”) market, and it can be a valuable alternative for insurance buyers.
As insurers get more selective writing some risks, it’s important for you as an insurance buyer to understand this market.

Why use a non-admitted carrier?

The most well-known non-admitted insurer is Lloyd’s of London, famous for insuring insurance companies and celebrities’ or sports figures’ body parts and global sporting events. Often non-admitted insurance companies are located in other states or domiciled abroad, like Bermuda or another tax-haven country.
Unlike licensed insurance companies, non-admitted companies do not have to obtain approval from state regulators for the policy forms they use or the rates they charge.

 

 

Since they are not regulated by the state, non-admitted insurers can offer creative coverage options and they can quickly and easily introduce new types of insurance that businesses need.
Some types of policies that are standard today, such as cyber insurance and employment practices liability insurance, got their start in the non-admitted market.
State laws typically permit a broker to obtain coverage from a non-admitted insurer only if at least a few standard insurance companies refuse to offer coverage. However, most also have coverage options that are not available in the standard market.
When someone needs one of the latter coverages, no rejections from licensed companies are required. An example might be liability insurance for contractors who demolish buildings.

Risks

There are risks to purchasing insurance in the non-admitted market. Policies may provide less coverage than do standard policies, or there may be restrictions on when coverage applies. Policies should be reviewed carefully. Also, because the insurers can charge whatever they feel is appropriate, premiums can be higher than you may expect. The policies may also be exempt from state laws regarding notices of cancellation and non-renewal.
Also, in every state but one (New Jersey), non-admitted policies are not backed by a guaranty fund. Guaranty funds cover claims left unpaid when an insurer is unable to pay for them. If a non-admitted company becomes insolvent, the policyholder has no recourse.

The takeaway

Despite the risks, the non-admitted market serves an important function, giving buyers a place to get needed coverage that would be otherwise unavailable.
Those who think they may need to tap this market should consult with us to find the right coverage at an acceptable price.


July 2021 – Construction Coverage – Builder’s Risk, Excess Liability Rates Climbing Fast


INSURANCE RATES are rising rapidly for contractors, particularly for builder’s risk and excess liability policies as the cost of claims continues to increase dramatically.
While rates for builder’s risk have been averaging 10 to 20%, pricing for excess liability and umbrella coverage has in some cases doubled from the year prior.
Both lines of insurance have seen steep and unexpected losses in recent years, resulting in some insurers leaving the market and others becoming stricter in their underwriting and choosier about which builders they are willing to extend coverage to.
If you’ve been in the market for these lines of insurance, you know that it’s become more difficult to secure similar policies to those you may have had in years past. Here’s a look at what’s going on.

Builder’s risk

According to Construction Executive magazine, rates are going up between 10% and 20% for builder’s risk policies. There are a number of factors affecting rates:
• The cost of claims has increased, primarily because of the cost of rebuilding after a loss event due to the rapidly rising cost of materials, in particular lumber, the prices of which have tripled in the last year.
• The increasing cost and frequency of natural disasters. Projects that are near areas at high risk for natural catastrophes like brush fires, hurricanes, tornadoes or flooding, are all seeing higher rates and/or difficulty in securing coverage.
• Some insurers have also left the market, leaving fewer players willing to write this risk, which has driven up pricing.

Insurers are tightening eligibility guidelines and restricting how much they will cover. Some insurers are getting more selective and demanding that their insureds take extra precautions before they are willing to bind a policy.

Some of the more common demands include requiring:
• Video surveillance systems on worksites.
• Guards to patrol worksites at night.
• The installation of fencing and lighting.

One of the biggest pinch points is policy extensions, which are needed when projects go beyond the time expected to complete them.

Due to the issues mentioned in the bullet points above, policy extensions for ongoing projects have been difficult to secure, according to a report by WillisTowersWatson. The problem has been exacerbated by the COVID-19 pandemic, which disrupted many construction projects across the country and required more companies to seek out extensions for their builder’s risk policies.

Excess liability

Renewals for excess liability and umbrella insurance have been running 50 to 100% higher than in 2020, according to a recent report by Marsh LLC. Excess liability and umbrella coverage kick in after a claim breaches the limits of a primary general liability policy or auto liability.

The drivers: Increasingly large jury awards and the spiraling cost of liability claims, particularly for commercial vehicle accidents. Commercial auto insurance rates have also been climbing as the cost of auto injury and property claims continue to rise due to the increasing cost of repairs and medical costs for injured third parties…

Those claims are covered by primary auto and general liability insurers, but because more claims are exceeding limits, excess liability carriers are increasingly on the hook for those high-dollar claims. Like in the builder’s risk segment, this has resulted in fewer insurers willing to write new policies.

Those that are willing to write new business or renew policies have imposed stricter underwriting terms on the policies they are willing to accept.
Additionally, according to Marsh, primary and excess insurers are limiting the overall capacity extended to an individual buyer by capping per-project aggregate limits.

The takeaway

With the volatility in the marketplace, we recommend that you reach out to us early – and months before your policy is coming up for renewal – so we can work with you to make sure we can secure the coverage you need.


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