The US commercial property insurance market is showing signs of improvement, with stable growth expected despite challenges such as climate change and inflation, according to the Insurance Information Institute (Triple-I).
Triple-I highlighted that double-digit rate increases have been common in recent years, particularly for properties in high-risk areas or those with poor loss histories. These increases are likely to persist for high-risk exposures. Strong underwriting performance and better investment returns could further support profitability in the medium to long term.
S&P Global reported that commercial lines achieved underwriting margins above the long-term average, despite slower growth in premiums written year-over-year.
Although non-rate factors limited overall premium growth in 2023, premium increases remain the primary driver of growth in US commercial property and casualty lines. However, an AON report highlighted that, for the first time since 2017, commercial property insurance rates declined—falling from a 3.4% increase in Q1 2024 to a 0.94% decrease in Q2 2024.
Dale Porfilio, FCAS, MAAA, chief insurance officer, Triple-I, stated, “Increasing climate and catastrophe risk, particularly secondary perils, drive losses.”
He added, “Catastrophe losses in the first half of 2024 were on track to be lower than in recent years while remaining above the 21st-century average.”
Munich Re reported that the 2024 Atlantic hurricane season resulted in $51 billion in insured losses from tropical cyclones in the US. Two major hurricanes, Milton ($25 billion) and Helene ($16 billion), accounted for 80% of this total. Despite these events, total insured losses for 2024 were slightly below those of the previous three hurricane seasons.
Reinsurance capacity has kept pace with demand, but challenges persist. The medium- to long-term outlook for commercial property insurance may depend on whether the reinsurance market becomes more competitive in 2025, given the high frequency of catastrophes and losses in late 2024.
Many commercial properties are underinsured, with replacement costs updated only every three to five years. A Kroll study found that 90% of appraised buildings were underinsured, with 68% of those valued from 2020 to 2021 underinsured by 25% or more. Additionally, rents for commercial properties have declined, and over $1 trillion in real estate-based loans are set to mature in 2025. Investors are likely to recapitalise loans to reflect lower property values in the coming year. Inaccuracies in valuations could disrupt the modeling of expected losses for insurers and commercial policyholders.
Porfilio noted, “This vulnerability could ignite a shift in property insurance dynamics when the market sees an increase in claims not adequately covered by existing policies and introduce more volatility in the commercial property market.
“Transformations in underwriting practices and policy structures can mitigate economic volatility. As businesses demand more comprehensive coverage options to address the increasing complexity and frequency of commercial risks, insurers may need to harness innovation,” he added. “Future outcomes will ultimately hinge upon relationships between insurer and policyholders.”
