Property Perspective: Steering through a firming commercial property insurance market
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.