Property Insurance Rate Increases Easing for Real Estate Sector

After six consecutive years of steep Property Insurance rate increases, many organizations in real estate development and property management may finally experience a more palatable renewal.  

Recent corrections in the Property Insurance market, which emphasized rate adequacy and insurance to value, have established a new baseline for pricing. Real estate entities who have already sustained significant valuation adjustments to reflect today’s cost to rebuild are now closer to this new baseline and can expect a more modest increase compared to previous years.  

However, the Excess Insurance market remains volatile. Many real estate organizations previously accustomed to securing Umbrella limits of $25 million to $100 million are now buying $5 million to $10 million limits at much higher premiums.  

A significant positive development involves the catastrophe reinsurance market. According to reinsurance broker Howden Re, “Property catastrophe reinsurance rates will fall 5% on average on a risk-adjusted basis at the key June 1 renewal date,” following two years of sizable rate increases. This decrease is attributed to greater levels of capital in the sector.  

Howden Re sounded a note of caution, however, pointing to “risks of reinsurance losses due to the expectation of an ‘extremely active’ hurricane season this year in the Atlantic basin.” 

Hurricane season: open for business 

The National Oceanic and Atmospheric Administration (NOAA) predicts an above-normal Atlantic hurricane season, forecasting 17 to 25 named storms, with roughly half potentially becoming hurricanes and as many as seven reaching major hurricane status. Factors contributing to this forecast include warmer than average sea-surface temperatures combined with La Nina conditions, which reduce tropical wind shear and drive storm development.  

Conversely, NOAA forecasts a below-normal central Pacific hurricane season, expecting one to four tropical cyclones. La Nina conditions on the West Coast have the opposite effect, creating more vertical wind shear, which suppresses cyclone formation.  

What’s ahead for reinsurance  

Robin R. Rider, VP of Sales Development for Alera Group’s West Region, recently attended a Lloyds presentation titled “A Look Over the Horizon: The Global Reinsurance Market at Midyear,” presented by Charlie Beeching of Howden Re. Rider reports that a quiet North American hurricane season of $10 billion in 2023, compared to $60 billion in 2022, has the potential to keep the Property Insurance market flat for the remainder of this year.  

“Overall, pricing has improved with better underwriting performance,” Rider said. “The balance of power between reinsurance and insurance is shifting back toward insurance, which is good news for real estate organizations. Furthermore, April 1 saw flat or slightly lower rates on non-loss lines due to increased reinsurance capacity.”   

In December 2023, Alera Group published its 2024 Property and Casualty Market Outlook, which cited multiple factors influencing the market. These included:  

Catastrophe-prone and higher-crime areas influencing rising rates across the board; 

• A focus on insurance-to-value; 

• Rigorous underwriting; 

• Ongoing cutbacks in coverages; 

• A decrease in options for habitational risks; 

• Environmental, social and governance (ESG) concerns. 

 Additional reinsurance factors impacting Property Insurance rates include: 

•  RMS catastrophe modeling. RMS catastrophe modeling predicts double-digit loss increases for the 1-in-100-year probable maximum loss. This means that RMS models forecast that the largest possible loss occurring with a 1% chance each year will increase. As Insurance Business Magazine reported in a December 2023 article on Moody’s newest  RMS, RMS 23, “Understanding how primary insurers use catastrophe models such as RMS can help brokers make informed decisions about their clients’ coverage.” 
• Higher loss frequency. Higher loss frequency leads to fewer losses being transferred to reinsurance. When insurance carriers experience losses more frequently, they tend to retain more of these losses rather than passing them on to reinsurers.  
• Improved reinsurance results. This indicates that reinsurance companies are seeing better financial performance, which can affect the overall cost and availability of reinsurance.  
• Higher rates and attachment points. Higher rates refer to the increased cost of purchasing reinsurance, and higher attachment points mean that primary insurers cover more significant initial losses before reinsurance coverage begins to pay out.  

“Recent trends in Property Insurance and reinsurance markets present both challenges and opportunities for the real estate sector,” Rider noted. “By adapting their risk management strategies, engaging specialized brokers and planning proactively, real estate organizations can mitigate the impact of higher premiums and lower coverage limits while leveraging the stabilization of rates for long-term financial planning. This strategic approach can enhance resilience and competitiveness in a dynamic market environment.” 

What you can do 

Real estate is a challenging business class, and partnering with the right broker is essential for navigating the complexities of securing insurance. When choosing a broker, consider the following key factors:  

• Specialization in real estate. Prioritize brokers with a specialized real estate focus. Your insurance program will benefit from a tenured broker with industry knowledge who understands market dynamics and real estate risks. Such brokers will know where to place business, which underwriters desire your business and how to get your submission to the top of the pile for the right look. To ensure success, avoid generalists, as they may not have the depth of carrier relationships necessary to properly navigate the market. Given that real estate organizations tend to switch brokers frequently, finding a broker with a high retention of real estate clients indicates a skilled partner. 
• Proactive, honest communication. While it’s easy to deliver good news, it takes a certain skill to repeatedly deliver bad news. Partner with a broker who advises you on the bad news, shows empathy, works proactively rather than defensively and provides year-round communication about market conditions in preparation for the next renewal. The right broker fosters a reliable partnership by maintaining consistent and proactive communication.   
• Established relationships with carriers. Leveraging a broker’s buying power and well-established relationships is instrumental in navigating challenges, especially for Property Insurance and Excess Insurance. A broker with strong relationships among leading carriers is better positioned to successfully advocate on your behalf. Due to the limited number of insurance carriers in the real estate space, significant competition is rare, making strong broker-carrier relationships even more crucial.   
• Detailed insurance program review. A knowledgeable broker will scrutinize policy forms, endorsements and exclusions, which can significantly impact coverage. Insurance carriers frequently (and quietly) add new exclusions at renewal, such as those related to carbon monoxide and assault-and-battery losses. Once an exclusion is on your policy, it may be difficult to remove. A detailed broker review is essential to ensure comprehensive coverage.  

Navigating the real estate insurance landscape requires a deep understanding of market dynamics. By selecting a specialized broker who is committed, communicative and knowledgeable, you significantly enhance your chances of securing the most favorable insurance program in the tough business sector of real estate.  

CONTACT A REAL ESTATE SPECIALIST   

For a broader look at navigating insurance market conditions, download Alera Group’s 2024 Property and Casualty Market Outlook. 

About the author 

Pete Carrucciu, CRIS 
Senior Vice President, Real Estate and Construction Practice 
Foa & Son Insurance, an Alera Group Company  

For two decades, Pete Carrucciu has led the Real Estate and Construction Practice in the Commercial Insurance Division at Foa & Son Insurance, an Alera Group Company. Drawing on his 30 years of experience in marketing insurance risks and his commitment to staying ahead of the competition, he has developed cutting-edge insurance products that meet the needs of owners, developers and general contractors.  

Pete regularly attends management conferences on construction risk to stay abreast of the latest insurance products and coverage designs. He has also earned the respected industry designation of Construction Risk and Insurance Specialist (CRIS).  

Contact information:  

• Pete.Carrucciu@FoaSon.com  
• Connect with Pete on LinkedIn