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Property Perspective: Steering through a firming commercial property insurance market
November 25, 2019
2020 is almost here. As we look back, it’s been quite a year for AXA XL’s Michele Sansone and her North America Property Insurance team. For the first time in a long time, she and her team are helping clients manage a firming commercial property insurance market. In the face of increasing insurance costs, Michele and team are hoping to see more clients take advantage of property risk engineering expertise to implement effective loss prevention that can reinforce and protect properties.
As far as property insurance is concerned, what is the outlook?
There will be continued pressure on rate as the property market continues to firm. The key driver behind rate is quite simply the rate reductions over the previous five years. While it’s true that we’ve seen two consecutive years of high cat losses, the more than 11 quarters of rate decreases before those cats hit are the real impetus. Carriers simply cannot keep racing to the bottom with rate and remain profitable while adequately protecting their clients.
More and more insurers have been steadily realizing this and the answer has been two-fold: more underwriting discipline with tighter terms and conditions and getting more rate. We’ve heard of rate jumps as high as 25% to 40%, which is a clear illustration of both how far rates fell and the concern over increasingly more frequent and more severe Nat Cat events. Rate increases are, therefore, going to be especially true where cat exposures are concerned. With extremes in weather becoming the norm and bringing greater risk of wildfires, tornado, flood and wind losses, carriers that want to stay in business will have to get more rate to take on that increased risk.
What are going to be the most challenging issues for 2020?
We’ll continue to see more reductions in capacity for certain industries and risk categories: frame habitational is an obvious one, but also for high hazard industries like steel and pulp and paper.
From our perspective, we’ve been consistent in terms of capacity. Quota share programs are likely to be more widely used. With many insurers tightening up on capacity, there’s much greater syndication of risk as more insurers are needed to fill out and build a layered program.
In the case of a shared layered placement with 10 carriers on it presently, we might expect to see more like 15 to 20 carriers on renewal. That illustrates vividly how much capacity is being pulled back in the market.
On the contrary, however, an area where we see continued growth is in our Platinum Book of business. These are clients that buy 100% of their property coverage from AXA XL. In addition to offering capacity of up to USD 1 billion, clients benefit from streamlined claims and risk control processes, which are not the norm in a heavily layered placement. Although, I will say that when we have a lead position in a stack our teams have a well-earned industry reputation for taking ownership, working proactively and cooperatively with the other carriers to resolve issues fairly.
Given increasing rates, how can businesses make their property risk more appetizing for commercial property insurers like AXA XL?
Risk avoidance is still the best risk management technique, so strong loss prevention practices and risk engineering are key. Additionally, accounts that have business continuity plans in place, make capital expenditures on improvements to fortify properties, and can demonstrate they are better year over year from a risk perspective fare better than those that do not.
That’s where AXA XL Risk Consulting is a big help to both our underwriting teams and our clients. We rely on the data and insights that our property risk engineers collect on site to price the risk we assume. But we also share the data they collect with our clients to help them in their loss control efforts as well as our own.
Through an enhanced web-based platform called SiteForward, we offer clients access to a suite of risk management capabilities and tools to help them visualize their business operations, track potential risk exposures and gain insight to make informed risk management decisions.
Taking loss prevention seriously has never been so important for our clients. We can’t control many of the forces of nature that inflict billions of dollars of damage each year. But we can take more control over how well our properties can stand up to them.
In your opinion, what are the top three risks for insurers at this time?
Talent is probably number one. If you’ve ever looked around an industry conference or a conference table at any carrier’s office, you can see the insurance workforce is aging. Some have called it the “Silver Tsunami” and the wave is NOT going to be kind. Half of the industry will be ready to retire by 2034.
By 2020, the insurance industry will have 400,000 open positions and we’re going to find ourselves missing a lot of much needed experience. This is a wave industry observers have seen coming for a decade. We, as an industry, have to do a better job at attracting the next generation of talent – some surveys say that only 4% of millennials are considering insurance. With Gen Z now at college age, we need them to see that insurance is a career where you can both do good and make a good living.
Data. There’s so much data. And the insurance industry is still trying to figure out how to use it; how to glean the best insights. With the proliferation of telematics devices, connected (IoT) devices, imaging tools, environmental monitoring systems and so on - we have so much data. But, of course, more data isn’t always a good thing. We need to find the insights hidden within the data points. The danger for insurers is that you’ll miss an important insight in a flood of data streams that could leave you open to an exposure you hadn’t accounted for. AXA XL is investing deeply in both artificial intelligence (AI) and machine learning to uncover those critical insights.
Finally, overall profitability. Given years of declines combined with record-breaking cat losses, carriers need to strengthen their financial positions and practice disciplined underwriting. But most of all, carriers simply must stick to what they do best, focus on delivering superior service and coverage, while maintaining underwriting discipline. Client retention is critical.
- About The Author
- Michele Sansone
- Chief Underwriting Officer, North America Property Insurance, AXA XL