US real estate and hab rate push to last “well into 2021”: AmWINS

US real estate and habitational carriers are obtaining rate increases of up to 17.5 percent for clean accounts, while E&S submissions in this sector may grow further as Covid-related closures lead to more building vacancies, according to AmWINS.

In a Q3 update on the US property market, the wholesale broker reported that key carriers in the real estate and habitational space anticipate a continued push for meaningful rate and deductible increases throughout the remainder of 2020 and well into 2021.

However, the size of required rate increases is likely to be more controlled than over the past 12 months, it said.

The broker said to expect 10 percent to 17.5 percent rate increases for clean accounts, while distressed accounts with loss frequency or severity will see higher rate adjustments. It said that increased all other perils, hail and/or named storm deductibles may be in play in select instances.

“Underwriting scrutiny is at its peak as carriers strive to deliver profitable results to their investors,” said Bob Black, executive vice president at AmWINS Brokerage in Atlanta and national real estate practice leader. “Nearly every carrier continues to closely examine the valuations which are reported by insureds.”

Black added that undervaluation is either being adjusted on the front end with a requirement to increase values or on the back end by carriers grossing up the values for calculating premium.

“Scheduled limits and margin clauses are more commonly being applied to accounts that won’t agree to maintain adequate insurance-to-value as defined by the carrier,” he said.

“Nearly every carrier continues to closely examine the valuations which are reported by insureds”

Bob Black, AmWINS Brokerage national real estate practice leader

AmWINS said that Covid-related claims in the real estate and habitation sector will continue to grow, either where coverage was granted within manuscript forms or where loss was not excluded in underlying policy forms. It said Covid-19 claim denials are actively being issued by carriers within the real estate and multifamily spaces.

In addition, communicable disease exclusions are common on both new business and renewals, as well as clear language that time element coverage will only apply as the result of direct physical damage from a covered cause of loss.

“There is ongoing and substantial scrutiny of proposed manuscript forms and endorsement language,” said Black. “Non-concurrency within complex layered and shared property programs is on the rise as a result.”

AmWINS reported that some domestic markets and London syndicates had been attracted by the rate and deductible increases over the past 24 months. These markets had previously exited these classes of business because of insufficient rate and/or deductibles.

“The first and second buffer layer within the largest and most complex of these placements is now the most challenging to optimize,” said Black. “This is a shift from the days where primary layer capacity was severely limited and buffer layer capacity was plentiful.”

Real estate and habitational E&S submission volume is near or at an all-time high, AmWINS said. It may grow further as Covid-related closures lead to more building vacancies, the broker said. As a result, placements are being finalised much later than during soft market conditions.

Steeper E&S price increase trend to continue

Discussing the property insurance market generally, AmWINS noted that the forces currently at play would not normally lead to hardening.

“This is not what we would consider a traditional hard market, where demand exceeds supply,” said Harry Tucker, AmWINS national property practice leader. “The market is very well capitalised, yet we are still seeing pricing increases year over year.”

He added: “We expect to see steeper price increases on the E&S side of the house than in standard lines, and we anticipate that trend will continue for the next 12 to 18 months.”

AmWINS property lines account data showed a 12.2 percent average property renewal price increase in Q3, up slightly from 12.0 percent in Q3 2019.

The wholesale broker noted that several new or heightened factors are affecting the market in addition to the usual drivers, including Covid-19, catastrophe losses trending above normal levels because of storms and wildfires, and social unrest.

Tucker said the long-term impact of wildfires is unclear.

“This is one area of property experiencing a capacity constriction, particularly for high-end, wildfire-exposed homes in excess of $20mn,” he said.

Carriers are looking closer at the parts of their property books exposed to riots in major metro areas.

“For businesses with a higher exposure, we’re seeing increased deductibles and changes in terms,” Tucker said. “Any kind of franchise business that has a large storefront is particularly susceptible and is seeing notable drawdown in capacity.”

In builders’ risk, AmWINS said there is $150m or more in capacity available to frame projects. This capacity is through utilizing numerous markets on a quota-share basis with an agreed-upon single form and assigned claims adjustment firm.

The broker said that buyers can expect frame rates starting at $0.30 and deductibles from $10,000 to $25,000, with potentially higher deductible amounts required for water damage claims. Underwriters have also tightened guidelines around theft and vandalism claims.

In energy, underwriters are demanding robust safety and loss control measures in addition to rate and deductible increases. “We also expect that underwriters will soon hit their targets for the rest of the year if they haven’t already, allowing them to be even more selective in the risks they will write,” said Rob Battenfield, senior vice president at AmWINS Brokerage in Houston.

Property markets for downstream energy and power continue to drive premium, terms and conditions, with reduced capacity available. AmWINS said that property markets for the power and utility sector have moved slower because of its insulation by the industry mutuals.

In parametric business, competition is expected to increase as a result of the pandemic. “We see more markets entering this space, more diversity in offerings, and faster product development,” said Alex Kaplan, executive vice president of AmWINS’ alternative risk team. “In a hardening property market, these structures begin to look more appealing from a coverage and pricing perspective.”

Kaplan predicted that development speed and product accessibility will both increase in 2021, while costs will decline. “I anticipate that new pools of capital will choose to enter this space,” he said. “We are only scratching the surface of what is possible as new technologies are developed, the computational power of the industry increases, and the broad scale of data digitization continues.