MARKET OUTLOOK
2023
Commercial Property Insurance Midyear Market Outlook
The last several years have seen the commercial property insurance market progressively harden , evidenced by ongoing rate increases over the past 22 consecutive quarters . Such rate hikes showed some signs of stagnation throughout 2022 by largely remaining within single digits , according to insurance experts . However , this moderation didn ’ t last in 2023 , as rates surged by an average of 20.4 % in the first quarter of the year . Industry data reported that this jump represented the first time the segment has recorded overall rate increases above 20 % in more than two decades . Further , current market trends have left some insureds with aboveaverage rate increases and lower capacity , particularly those exposed to catastrophe ( CAT ) perils ( e . g ., hurricanes and wildfires ). Looking ahead , policyholders who conduct high-risk operations , have poor loss control practices , or are located in natural disaster-prone areas will likely remain increasingly vulnerable to persistent rate hikes and coverage limitations
DEVELOPMENTS AND TRENDS TO WATCH
Natural disasters — Natural disasters often cause severe losses for affected establishments , and the rising frequency and severity of these catastrophes have continued to pose concerns in the commercial property insurance market . According to industry research , natural disasters cost the global economy an estimated $ 77 billion in the first quarter of the year , with about one-third ($ 22 billion ) of those expenses covered by insurers . Such costs are only expected to persist — or even worsen — throughout 2023 as hurricane season approaches and wildfires spread across the Western United States . In particular , the National Oceanic and Atmospheric Administration predicts that 12 – 17 total named storms will take place amid this year ’ s Atlantic hurricane season , which runs from June 1 through November 30 . Among these storms , as many as nine could become hurricanes ( winds of 74 mph or higher ), while up to four could reach major strength ( winds of 111 mph or higher ).
Additionally , the National Interagency Fire Center reported that nearly 20,000 wildfires have already taken place so far this year , burning more than half a million ( 620,986 ) acres along the West Coast . Although this total falls below the 10-year average , the potential for yet another intense wildfire season in the months ahead remains . Many climate experts anticipate that natural disaster trends will proceed to exacerbate related property losses in the coming years .
Reinsurance capacity concerns — The latest natural disaster and inflation trends have proven particularly difficult for the commercial property reinsurance space to navigate over the last few years , contributing to widespread capacity challenges . Making matters worse , Hurricane Ian wreaked havoc on the segment in the final months of 2022 , causing substantial losses and making it even more challenging for reinsurers to maintain their coverage offerings , specifically as it pertains to CAT exposures . Consequently , some reinsurers have begun limiting their capacity for these exposures or eliminating capacity altogether , all while rates continue to surge . According to industry data , January 1 reinsurance treaty renewals delivered some of the hardest market conditions in decades , with capacity shrinking by more than half across most layers and rate increases ranging between 40 % and 100 % for most policyholders , depending on their CAT exposures . Six months later , June 1 renewals reflected similar trends , with capacity tightening even further and rate hikes falling between 25 % and 40 %, thus demonstrating ongoing risk aversion within the reinsurance space . +
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