MARKET OUTLOOK
Commercial Property Market Outlook
The commercial property insurance market has hardened in recent years , with consistent rate increases since the third quarter of 2017 . These rate increases were evident in the beginning of 2022 with first-quarter rates rising by an average of 7.6 %, according to industry data . Similar pricing trends occurred in the reinsurance markets during the same period through moderate , single-digit rate increases for most carriers . Yet , it ’ s important to note that some insureds may have encountered above-average rate increases , lowered available capacity , and certain coverage restrictions — especially those exposed to catastrophe 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 vulnerable to ongoing rate increases and coverage limitations .
DEVELOPMENTS AND TRENDS TO WATCH
NATURAL DISASTERS
The growing frequency and severity of natural disasters have continued to pose concerns across the commercial property insurance market . After all , these catastrophes often leave behind severe property damage and associated losses for
affected establishments . According to industry experts , natural disasters cost the global economy $ 32 billion in the first quarter of the year , with under half of those expenses ($ 14 billion ) covered by insurers .
Such costs are only expected to persist — and even worsen — during the remainder of 2022 , largely due to predictions of above-average hurricane and wildfire seasons . Specifically , Colorado State University researchers anticipate 20 named tropical storms to occur in 2022 , with 10 becoming hurricanes and five reaching major strength with sustained winds of more than 111 mph .
Additionally , the National Interagency Fire Center reported that wildfires have already burned more than 2.6 million acres throughout the West Coast so far this year , nearly doubling the number of acres burned at this time in 2021 . Such numbers indicate yet another intense wildfire season in the months ahead . Further , many climate experts estimate that natural disaster trends will continue to exacerbate related losses in the coming years .
TIPS FOR INSURANCE BUYERS
• Determine whether you will need to adjust your business ’ s retentions or limits to manage costs .
• Gather as much data as possible regarding your existing risk management techniques . Be sure to work with your insurance professionals to present the loss control measures you have in place .
SUPPLY CHAIN AND INFLATION ISSUES
The COVID-19 pandemic and various foreign disruptions have contributed to a range of material shortages ( e . g ., lumber and metal ), supply chain issues , and inflation concerns within the past few years , thus impacting overall property construction and valuation costs . The first half of the year has seen exceptionally high inflation levels . In fact , as of May 2022 , the Bureau of Labor Statistics reported that the Consumer Price Index ( CPI ) had risen 8.6 % in the past 12 months , representing a 40-year high .
According to industry experts , such inflation issues have resulted in property construction costs rising by 10 %– 15 % ( depending on local conditions ) between 2021 and the beginning of 2022 . Compounding concerns , ongoing worker shortages in the construction industry have led to elevated labor costs and project delays . Consequently , policyholders may face more claims severity and possible underinsurance issues if losses require them to rebuild structures or replace business personal property at higher costs . Moving forward , overall inflation issues are expected to continue , potentially keeping propertyrelated losses and subsequent claims costs high for years to come . +
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