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Exhaust the data and create a piecemeal carrier approach to mitigate 10%+ insurance premium hikes

Legal, Compliance & Risk meeting

December 8, 2021

The best way to mitigate double-digit increases in insurance rates is to exhaust all options by trying to create a patchwork quilt of providers – and to exhaust the asset-level data, the NAREIM Legal, Compliance & Risk meeting was told this week.

After increases topping 25% in 2020, 2021 rates have moderated slightly – but were still averaging 17%, according to insurance broker analysis.

That’s due to a hardening of the market, limited new capacity emerging and a need by underwriters to price catastrophe risk in a way never before done. Pricing is expected to flatten in 2022 but most accounts were still seeing increases of 5% to 10%.

The Legal, Compliance & Risk meeting focused on insurance risk, and how member firms were mitigating the increases. To download the meeting presentations and attendee list, click here.

Members discussed expectations for 2022 for property insurance, general liability, umbrella and cyber. They highlighted the complexity of captive insurance pools in comparison to aggregate retention pools. But it was important, members were told, to exhaust all options – including by creating a three-pronged approach of master insurance programs, mini-master insurance programs and stand-alone options.

Key takeaways from the meeting include:

  • Capacity: New capacity has been added – but it’s limited in nature, with a key focus on property types such as industrial, versus CAT-heavy asset classes like multifamily and hospitality. Overall, it means underwriting is stricter, and exceptions will rarely be granted. “This is the new normal,” members were told.

  • Asset-level data: Asset-level data is crucial to preventing carriers from defaulting to the highest level of risk, with engineering risk improvement plans for CAT-heavy accounts imperative. Prepare for more intense scrutiny by underwriters & carrier credit officers

  • Rate change: There has been a moderation in the increase of property-level rates, with 2020 experiencing the highest rate of change YoY. The average and median rate of change at the property-level was between 22.6% and 25% in each quarter in 2020. That rate change slowed in 2021, with median rate change coming in at 11.7% in the 12 months to July 2021 compared to an average rate change for the same period of 17.3%.

  • GL: General liability risk is higher with concerns over profitability owing to loss deterioration, inflation of medical costs, COVID-19 unknown, insurer consolidation and nuclear verdicts or lawsuits against corporations. The meeting heard that with insurers are eager to settle and avoid trial owing to raise legal costs – something known by plaintiffs. As a result settlement costs are increasing.

  • Umbrella/Excess insurance: Portfolios are still being forced to introduce more carriers to build the same limits as their expiring programs and many insureds continue to carefully consider how much limit is being purchased. But there is a gradual shift in pricing with the median rate change in the low teens, compared to the 20% to 40% range experienced over much of 2021.

  • Selling increases to the business: Rather than having insurance brokers walk through the new reality of insurance risk to portfolio and asset managers and acquisitions teams, have the CEO/senior executives of your carrier talk to the team and walk through the risks and models.

Download the meeting presentations and attendee list, click here.

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