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Commercial Property Insurance Rates on the Decline

Low Incidence of Natural Hazard Events in 2015 Likely to Contribute to Continuing Trend

Thomas O'Neil    |    Insurance

During the last few years, commercial property insurance rates have steadily declined and the trend is expected to continue in 2016. The decline has been fueled by several factors which begin with a steady stream of entrants into the commercial insurance market including non-traditional insurers, start-ups and investors in search of alternative opportunities for capital. More suppliers have resulted in increased competition and expanding purchasing options for business owners. In addition, there have also been multiple years of minimal catastrophe losses which have enabled capital accumulation by reinsurers resulting in reduced reinsurance rates. Primary insurers have been buying less reinsurance than in the past, thereby increasing supply of capacity further and putting more downward pressure on rates. The combination of new capital, decreased reinsurance costs and increased competition resulted in commercial property renewal premiums decreasing by 5 to 15 percent in 2015, according to specialty broker AMWIN’s “State of the Market Fall 2015” report.1

The expectations for 2016 are for further declines. Moody’s Investors Service cites low catastrophe activity and decreasing reinsurance rates contributing to the continuing trend in 2016.2 And MarketScout, an insurance exchange connecting agents/brokers and insurers, is also projecting a significant decline in commercial property rates. According to MarketScout, commercial property rates dropped from minus two percent in December 2015 to minus five percent in January 2016.3

CoreLogic recently released its 2015 Natural Hazard Risk Summary & Analysis report which explores the continued trend of fewer U.S. natural hazard events overall in 2015 that resulted in decreased damage and loss totals for the year. That will likely contribute to continuing downward pressure on commercial property insurance rates, which means business owners can look forward to lower renewal premiums, and new purchasers of commercial property insurance will see lower policy rates than in previous years.

As insurers face continuing downward price pressure, thoroughly understanding exposure and selecting risk that meets their underwriting criteria will be paramount. Critical inputs to this will be information and analytic tools that provide insight to the physical characteristics of property, proximity to natural hazards and the impact of catastrophe scenarios.

1AMWINS State of the Market Fall 2015 report

2Moody’s report

3MarketScout Barometer

4Council of Insurance Agents & Brokers Commercial P/C Market Index Survey

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