2022 Insurance Rate Changes Coming

A hoped-for return to “normal” for real estate isn’t yet in sight.

Instead, 2022 will be about owners and operators reshaping their approach to risk management and adjusting to growing catastrophe exposures and rising liability risks. Escalating nuclear verdicts, civil unrest and natural disasters will continue to result in higher rates, lower capacity, and restrictive coverage terms.

Here are the trends we are seeing:

• The commercial real estate insurance market remains tight with carriers assessing their portfolios by reducing their exposures in hopes of returning to profitability. Standard carriers have restricted or stopped underwriting risks on habitational properties including single-family homes, multi-family apartments, student housing, senior care properties and government-subsidized housing. Property owners may need to turn to a non-admitted surplus lines market for coverage, especially if portfolios show more than a 20 percent average of habitational risk.
• Given rising rates, real estate owners are likely to want to shop carriers. Having two brokers will affect pricing on large portfolios. Underwriters will accept only one broker at a time, and if the first broker to engage does not present a complete submission, it results in a declination to quote for all brokers. Insureds that require higher limits and purchase their insurance through multiple carriers should have a single broker coordinating between all the carriers to ensure terms and conditions are seamless.
• As carrier appetites for risk fluctuate, brokers are tasked with giving alternative options to the incumbent. In order to secure a quote, a complete submission is required including statement of values with post-pandemic replacement construction costs and loss runs, even for clean portfolios, to secure new and renewal terms.

In the face of surging costs for labor and materials, it’s good to review building valuations. Insureds who have performed updates for older buildings and have proper maintenance protocols will present a more attractive risk.

For best-in-class portfolios, expect to see some relief of year over year premium increases. However, further reinsurance actions are expected to come in January 2022, and those increases will be passed to insureds. Best-in-class portfolios who have already received significant rate increases the last two years may see some stabilization or smaller increases.

Read HUB International’s 2022 Real Estate Industry Outlook and get additional perspectives on what to expect and prepare for in the year ahead.