Steep losses that have forced insurers in the habitational property market to be far more cautious about underwriting risk, reduce capacity, or shutter operations completely have not been enough to obscure two indisputable facts. The first is that this $22 billion market—7% of the $314 billion commercial lines market—is too large to ignore. The second is that insurers will need to embrace AI-enabled property condition intelligence to increase efficiencies to boost their chances of success in this hardening sector.
To underscore some of these dynamics, let’s look at some of the challenges facing the habitational property market in CA. State Farm stopped all apartment business in CA since Mar 2023. Travelers, Farmers, Nationwide, Safeco(Liberty Multual), etc pull off most commercial businesses in CA. Allstate even shuts down all commercial business in CA.
One persistent long-term factor shaping the current hard market is the COVID-19 pandemic, which extended the period of near 0% interest rates for multiple quarters, resulting in insurers relying more on underwriting profits than investment income. The pandemic has also played a role in the current protracted economic volatility, which increases insurance costs, prompting insurers to tighten their underwriting standards. Unpredictable major weather events are taking place with increasing frequency, resulting in harder to predict pricing in the habitational market space.
In this hard market cycle, it is critical that the insurance company you are working with accurately and completely understands your organization or business, your exact exposures to risk and how you manage these exposures via various loss control procedures. Having a professional risk management partner that understands your business – both where you have been and where you are going – and how to differentiate from your competitors can and should be used to your advantage when insurance company underwriters are inundated with new business opportunities.
With inflation remaining at a 40-year high and recession fears looming large on everyone’s minds, insurance rates are likely to keep increasing for the remainder of the year, but the degree of increases will level off. In the commercial real estate market, since property claims are typically settled quicker than liability claims, the property line can serve as a useful forward-looking indicator on the state of the market.
If and when the market does soften and flip, safety and risk management best practices should be top of mind to ensure you’re positioned for success in the eyes of insurance carriers. Having strategies and processes in place that can help prevent losses from happening while minimizing the dollars being paid out in losses is critical to support this effort.
Faye - Habitational Retail Risk Management Specialist