Analysts at Risk Placement Services (RPS), an MGA subsidiary of brokerage Arthur J. Gallagher, believe that reinsurance will “play a larger role in rates, capacity and terms” this year.
While the impacts of the 2020 election and COVID-19 on the US economy remain uncertain, RPS is confident that the cost of property insurance will continue to rise for the foreseeable future.
According to RPS, over the first half of 2021 insureds can expect to see rate increases in the high single digits to 15% range on clean accounts, and higher on accounts with losses.
This is partly due to ta trickle-down effect from higher reinsurance costs, which have rose by 10% to 15% at the January 1 renewals, RPS says, following mid-year 2020 rate increases of 25% to 35%.
But although reinsurance prices have climbed substantially, Wes Robinson, National Property Brokerage President of RPS, notes that “the losses have not let up, so many carriers are still not making money.”
The property market also has been impacted by climate change, which is particularly evident in the more than 800 wildfires along the west coast that burned close to 6 million acres, RPS reports.
“Billions of dollars in insured claims prompted a standard market exodus in many parts of California,” the firm explained. “And while the E&S market is available to cover many of these losses, premiums are much higher than most insurance buyers are willing to pay.”
The shifting of Tornado Alley also has been attributed in some part to climate change, causing a significant increase in the number of tornadoes occurring in the Mid-South region.
Additionally, 12 hurricanes made landfall in the contiguous United States, with Hurricane Laura representing the largest single loss eventrisk place with insured losses estimated at $11 billion to $15 billion.
And because rebuilding costs are often higher due to increased demand for materials following a natural catastrophe, as well as increased use of technology in building properties, some claims have been piercing excess coverage layers, taking excess carriers by surprise.
“Insurance-to-value is a very, very hot topic, and it will be again for 2021,” said Stephen Adair, Senior Vice President at RPS. “It has been challenging placing excess coverage without solid valuations.”
RPS believes capacity will be especially tight for buyers in catastrophe-prone coastal regions and in parts of the Midwest, requiring many to layer coverage from multiple carriers to get the excess limits they need.
That said, there is more ILS capacity beginning to enter into the E&S market as investors see potential profit-making opportunities there.