Category: Industry News

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Metro New York Real Estate Industry

As the real estate industry moves into 2026, the insurance marketplace has become a materially more complex and differentiated component of asset performance. Volatility persists across all major property types; including office, retail strip centers, industrial assets, apartment portfolios, and community associations, where insurance outcomes are no longer driven by asset class alone. Underwriters are evaluating both new and renewal business through an increasingly granular lens, factoring in asset quality, historical loss performance, risk controls, and the sophistication of data presented. In this environment, broad market assumptions provide little predictive value, and a well-informed insurance strategy has become an increasingly important lever in protecting returns and preserving long-term asset value.

Standard admitted carriers continue to reevaluate their books of business with tight underwriting guidelines in an effort to recover a path to profitability. Conversely, excess and surplus markets are being influenced by new investor capital entering the reinsurance space seeking market share and creating capacity to absorb more exposure.  However, this comes with strings, dictating pricing, attachment points, and coverage terms.  These competing dynamics have created a marketplace that is both opportunistic and unforgiving depending on how well a risk is understood and presented to the market.

Despite significant catastrophe losses nationally in early 2025, a comparatively calm second half of the year, particularly in the Northeast, has contributed to a notable shift in market sentiment. As a result, real estate owners and community associations in the Metro New York area will see more options than they have seen in several years, though not without continued complexity.

Property Insurance: Stabilization and Selective Relief

The first half of 2025 was marked by severe catastrophe activity across the United States. The California wildfires destroyed approximately 15,000 structures and resulted in an estimated $40 billion in insured losses. In addition, more than 170 tornadoes and major hailstorms across 14 states damaged or destroyed roughly 60,000 structures, contributing an additional $15 billion in losses.  While these events significantly impacted national carrier and reinsurance, the second half of 2025 was relatively quiet, especially in the Northeast.

This slowdown in catastrophic losses, paired with the underwriting discipline carriers adopted at the height of the hard market in 2023, has gone a long way toward stabilizing balance sheets and restoring investor confidence in the property insurance sector.

As new capital flows back into the market, competition has increased and capacity has returned. This has resulted in a meaningful shift in pricing trends compared to the prior five years. Property rates are now declining across much of the industry, with the most pronounced reductions seen in newer and superior construction for commercial and industrial occupancies.

Habitational and mixed-use buildings are also seeing rate relief, though to a lesser extent. Older construction, high-rise residential properties, frame construction, and mixed-use buildings with commercial cooking, childcare, or nightlife exposures continue to be underwritten carefully.   Alex Lee, commercial lines underwriter for DB Insurance Company, a leading habitational carrier for community associations in New York, echoes the above sentiments.  “While DB does not always follow broader market trends, due to the competitiveness of our existing pricing, we anticipate a softer market ahead and are preparing to compete through broader enhancement packages and extended replacement cost implementation.”

While pricing pressure has eased, underwriting scrutiny remains elevated, and accounts with incomplete data, outdated valuations, or unresolved loss control recommendations continue to face challenges.  The market is no longer indiscriminately pushing rate, but it is rewarding preparation. Owners who invest in capital improvements, maintenance, risk management, accurate valuations, and thoughtful submissions are seeing tangible benefits.

General Liability: Flat Pricing, Heightened Caution

General Liability has entered 2026 with a flattening rate curve following several consecutive years of increases. While this stabilization is welcome, it should not be mistaken for a soft market. Loss trends, particularly those driven by litigation financing and social inflation, continue to weigh heavily on carrier behavior.

Legal advertising and third-party litigation funding have expanded dramatically. In 2024 alone, legal service providers (personal injury law firms) spent more than $2.5 billion on nearly 27 million advertisements, representing a 39 % increase from the prior year.

At the same time, nuclear verdicts have become more frequent and more severe. Marathon Strategies reported that in 2024 135 corporate lawsuits across 55 industries resulted in nuclear verdicts totaling $31.3 billion. This represented the highest number of such verdicts since 2009, with a 52 % increase in frequency and a staggering 116 % increase in severity year over year.

Against this backdrop, modest rate increases may persist in General Liability, but the greater risk for insureds lies in changes to coverage terms. Carriers are increasingly focused on limiting exposure to nuanced and high-severity loss drivers. Restrictions and exclusions are becoming more common for assault and battery, animals, firearms, construction-related operations, contractual liability and New York Labor Law exposure.  Much of these concerns extend to the metro NYC area, with the Bronx seeing the most restrictive guidelines and limited underwriting appetite.

A notable example of this trend occurred in 2025, when United States Liability Insurance Company revised its landlord policy forms to exclude coverage for claims arising out of New York Labor Laws 200, 240, and 241. These types of form changes underscore the importance of reviewing coverage language as carefully as pricing.

Policyholders who work with knowledgeable advocates and provide detailed underwriting information, are better positioned for coverage solutions despite the challenging legal environment.

Excess Casualty: Persistent Constraints

Excess Casualty remains the most constrained part of the insurance marketplace as we head into 2026. More and more often losses are breaking through primary liability limits fueled by larger jury verdicts, broader interpretations of liability and increasingly aggressive plaintiff tactics. In response, excess insurers are proceeding with caution and underwriting far more selectively than in years past.

Meaningful rate relief in the excess layers is still hard to come by.  Carriers are hesitant to lower pricing, offer true follow-form coverage or increase limits without meaningful trade-offs.  Attachment points keep moving higher and it’s now far more common for excess programs to be built in multiple layers across several insurers rather than placed cleanly with one carrier.

The risk purchasing groups (RPGs) that landlords and community associations relied upon for excess capacity in prior decades have largely disappeared. Only a small number remain, and those that do are selectively underwriting best-in-class accounts with superior loss histories, strong controls, and transparent risk profiles.  However, RPG programs are experiencing increased operational and reinsurance costs pushing renewal premiums higher, in some cases 300-600% from the expiring premium.  Nevertheless, more often than not, RPG programs are able to offer competitive pricing when compared to layered alternatives.   If RPG programs aren’t available for a specific property, structuring excess programs will require careful coordination, thoughtful limit selection, and an acute awareness of coverage gaps between layers.

Active Advocacy Equal Successful Outcomes

As we move into 2026, underwriters are inundated with submissions, particularly with residential assets.  In this environment, successful outcomes depend on risk consultants who do more than submit paperwork. They actively push clients for accurate data, clear disclosures and meaningful participation in the underwriting process, while also advocating with underwriters for fair terms, appropriate pricing, and clear coverage intent. Simply put, the better an agent understands the risk, the better positioned the client will be with insurance carriers.

If you have questions about how these market conditions may impact your building, portfolio or community association, we invite you to contact the Borg Insurance Agency. Our team actively monitors market shifts, educate our clients, challenge underwriting assumptions, and works relentlessly to secure the most competitive and appropriate coverage for our clients.

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The insurance industry is currently facing several challenges. It often seems like there is only negative news when discussing matters with brokers. It is important to understand the primary factors influencing premiums are reinsurance, capacity, and claims.

Background and Context:

Reinsurance is the insurance that retail carriers purchase to mitigate their risk of losses from the policy terms they offer to policyholders. The amount of reinsurance coverage a carrier purchases contributes to the amount of coverage they can offer to the market, known as capacity. Reinsurance is driven by private investment seeking returns. When the market experiences losses year after year, reinsurance rates increase due to the expectation of paying out anticipated claims.

From 2016 to 2021, the reinsurance marketplace experienced consistent losses, resulting in negative returns for investors. In response, investors withdrew from the space, reducing the coverage capacity that retail carriers could purchase from the reinsurance marketplace. Combined with inflation eroding profits, this led to a spike in premiums over the last four years.

For investors who remained in the reinsurance market from 2021 to 2024, increased rates led to profitability. Positive returns recently attracted more capital into the space. However, reinsurance carriers, wary of being too aggressive with rates and conditions, stabilized their 2024 renewal premiums with modest increases and limited coverage terms compared to the previous four years. Additionally, reinsurance carriers increased the loss retention attachments for retail insurance companies, meaning retail insurers now must pay a higher amount before reinsurance covers the losses. This increased retention forces insurers to enhance their financial stability on their balance sheets, which they report to government regulators. This is another factor that has contributed to increased rates for policy holders.

Homeowners Insurance in New York:

The New York homeowner’s insurance market has faced significant turmoil in recent years, with carriers grappling to maintain financial stability amidst regulatory challenges and shifting industry dynamics. In2023, Kemper Insurance Company’s attempt to exit the New York market was blocked by state regulators, preventing the cancellation of thousands of homeowner’s policies. Instead, Kemper adjusted its approach by modifying agent contracts vicariously forcing agents to organically reposition their clients away from Kemper into other carriers.

The situation escalated in 2024 when two major carriers, Mountain Valley Insurance and Adirondack Insurance Company, were granted approval to terminate thousands of policies by year-end due to financial insolvency. This forced a substantial number of homeowners to seek coverage elsewhere, straining the capacity of remaining carriers. To keep up with demand, carriers have had to purchase additional, often costly, reinsurance—expenses ultimately passed down to policyholders through higher premiums.

Adding to the complexity is regulatory decisions regarding rate changes. While actuaries calculate rates based on exposure and loss probabilities, regulators sometimes reject carriers’ requests for rate increases despite supporting financial data. In response, some carriers have taken an indirect route, increasing the reconstruction value listed on policies to raise premiums without altering rates—an approach that many might view as less than transparent.

The United States is currently contending with the aftermath of Hurricanes Helene and Milton, which have caused estimated damages and economic losses of $240 billion and $150 billion, respectively. Adding to this, the California wildfires in January 2025 are projected to result in damages ranging from $135 billion to $150 billion. Although these disasters are geographically concentrated in the Southeast and West, their effects are rippling across the insurance industry and impacting policyholders nationwide. As a result, 2025 is anticipated to remain a highly challenging market for the industry.

Personal and Commercial Automobile Insurance:

Have you heard about the ‘Kia Boys”? Their social media posts highlight the ease of stealing Kia and Hyundai vehicles, causing some insurers to stop offering coverage for certain Kia models.

The automobile insurance marketplace has seen significant losses over the last few years. According to the Bureau of Labor and Statistics, auto insurance companies lost an average of 22% in 2023. The National Traffic Safety Bureau reports that auto accident fatalities have increased by 17% since 2020, augmenting claims payouts. Auto theft has also increased, with a study by the Council on Criminal Justice finding a 33.5% increase since 2023. Rochester, NY, has experienced a staggering 355% increase in auto theft.

Additionally, uninsured drivers create a gap in the market, with carriers of insured drivers ultimately paying. Nationally, 1 out of every 9 vehicles on the road is uninsured, though in NY and NJ, only 4% and 3% of vehicles are uninsured, respectively.

Fraud is also rampant in the auto insurance space, with rings of corrupt claimants, doctors, medical examiners, and attorneys surgeries to drive up claim payments.

A V.P. from one of the nation’s 25 largest P&C insurers had this to say “The rate at which claim costs are increasing outpaces the speed that insurance carriers can make up that pricing gap, leading to tighter underwriting on the line. The industry as a whole has not made money providing auto insurance in recent years, and the outlook is that the industry will not turn a profit on this line until at least 2030. This drives the need for rate, risk selection, deductibles, and supporting lines needed to get a carrier to take on an auto fleet.”

In the past, several carriers offered mono-line coverage for automobile insurance. The new normal is that carriers want to see supporting business come with the auto policy, such as homeowners, business owners, or workers’ compensation insurance. Many commercial auto carriers have exited the market altogether, trying to rebalance their portfolios and minimize liabilities. As a result, it is prudent to expect sizable premium increases on renewals and a lack of options from alternative carriers.

Solution – What You Can Do:

There are a few strategies to help keep premiums in check, such as increasing comprehensive and collision deductibles, taking a defensive driving class, installing a driver tracking device, removing drivers who are no longer operating vehicles, and have your broker shop for alternative carriers.

Commercial Property Insurance:

At the beginning of 2024, indicators pointed towards rates plateauing with softening renewal premium increases. Investment in the reinsurance space seemed to be returning cautiously. However, as reinsurance treaties renewed at the end of Q2 of 2024, retail carriers reconsidered their positions, leading to increased property insurance premiums for policyholders. This particularly affected property owners of habitational, coastal, frame, and older construction assets. Underwriters scrutinized tenant bases, especially with the influx of migrants into the habitational marketplace. In NY, Governor Hochul signed a bill preventing carriers from inquiring about, increasing rates, or canceling policies based on building occupancy (NYS House Bill S 8306 ). This led to increased underwriting scrutiny and premium increases for even market-rate and owner-occupied buildings.

The United States is reeling from a series of catastrophic events, including Hurricanes Helene and Milton, which together have caused an estimated $390 billion in damages and economic losses. Meanwhile, the California wildfires of January 2025 are projected to add another $135 to $150 billion in destruction. Although these disasters are regionally concentrated, their repercussions are reverberating throughout the insurance industry. The strain on resources, rising claims, and increased reinsurance costs are expected to drive up premiums nationwide, underscoring the likelihood that 2025 will remain a volatile and challenging year for both insurers and policyholders.

Casualty, Excess Liability, & Umbrella Insurance:

The commercial liability market experienced mixed results throughout 2024, with premium increases persisting across high-hazard classes such as construction, real estate, food processing, and distribution. New specialty programs have entered the space, offering policyholders additional options to compare coverage. However, these programs often gain market share by providing lower premiums in exchange for higher deductibles, more restrictive terms, and increased exclusions. Legacy policyholders with the same carrier and established “premium equity” enjoy a competitive advantage, frequently securing broader coverage and more favorable renewal pricing. Peter Costolnick, Senior Vice President of RT Specialty, a leading insurance wholesale brokerage based in Buffalo, NY says, “We’re in the most challenging insurance market we have seen in the last 25 years. Relationships with the key decision makers matter most when it comes to getting favorable terms. Everything is a “favor” these days. Investing, maintaining and strengthening relationships with wholesale and carrier partners is critical for retail agents to achieve the best outcome for their insureds.” While it is fair for policyholders with clean records to see moderate renewal increases, clients with blemished claim records can expect to see steep increases year after year.

Claims litigation, marked by more severe verdicts and larger settlements, continues to challenge insurers and reinsurers. Carriers are reassessing capacity deployment in casualty markets, particularly in high-exposure verticals. A new rate plateau has emerged, driven by “legal system abuse” —previously known as “social inflation.” This trend includes litigation financing, where private equity investors, independent entities, and even foreign governments fund lawsuits enabling plaintiffs and personal injury law firms to prolong cases and secure larger settlements (aka investment returns). Bloomberg Law reported in 2024, litigation financing has grown into a $15.2 billion industry with no signs of slowing.

With little regulation or oversight, this practice has significantly inflated claim costs, adding to market pressures. William McGroaty of Philadelphia Insurance Company notes, “Traditionally, defense costs are separate and paid in addition to the coverage limits within policies. These expenses represent significant costs that insurance companies must cover in addition to settlements. This not only raises the overall cost of covered claims during litigation but also compels carriers to spend more out of pocket on claim defense, leading them to increase rates for high-risk classes in high-risk territories.”

Large losses and adverse loss development continue to create challenges for insurers, who are seeking additional reinsurance capacity to offset rising loss costs and mitigate the impact of nuclear verdicts. However, reinsurers remain cautious, with capacity in some areas contracting, widening the supply demand gap. While both insurers and reinsurers are expected to absorb some of these increased costs, it is uncertain whether recent rate increases will be sufficient to restore profitability and improve loss ratios. The coming months will be pivotal in shaping the industry’s response to these ongoing pressures. The insurance industry is navigating an unprecedented convergence of challenges, including mounting losses from natural disasters, rising reinsurance costs, regulatory constraints, and evolving market dynamics. Catastrophic events like Hurricanes Helene and Milton, combined with record-breaking wildfires, have strained resources and driven up premiums nationwide. Meanwhile, market-specific challenges such as auto theft, fraudulent claims, and regulatory pressures on rate adjustments continue to reshape the landscape across various lines of coverage.

As insurers balance financial stability with evolving risks, policyholders face increasing premiums and fewer options, especially in high-risk areas. However, strategic steps such as proactive risk management, exploring alternative carriers, and maintaining strong policyholder records can help mitigate the impact. While 2025 promises to remain a turbulent year for the insurance market, it also underscores the industry’s resilience and adaptability in the face of ever-changing challenges.

Solution – What You Can Do:

Policyholders who collaborate with insurance professionals to demonstrate how their business effectively manages exposures, contributing to carrier profitability, are more likely to receive favorable underwriting and rating outcomes. Providing brokers with accurate, comprehensive, and up-to-date data, along with realistic target premiums, will significantly streamline the underwriting process and help facilitate negotiations. Most importantly, partnering with reputable brokers who can leverage strong industry relationships will offer long-term advantages and better positioning in the insurance marketplace.

Since 1971, Borg Insurance Agency has proudly served business owners and individuals with exceptional care. Our family-owned and operated independent agency is dedicated to providing the personalized, white-glove service our clients value and trust. With decades of industry expertise, the Borg team is here to guide you through today’s challenging insurance landscape with confidence and ease. Call our office today to experience the difference and let us help you navigate your insurance needs!

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New technologies are being introduced into our lives on a daily basis. As part of the green wave of technologies, electric vehicles (EVs) are in high public demand and in some states, a requirement of future auto sales.

While auto manufacturers and infrastructure development companies ramp up development, insurance carriers are keeping a close eye on new exposures and unintended consequences that could arise out of these new technologies.

Since these technologies are still relatively new, loss data is not conclusive enough for actuaries to pinpoint the new risks associated with EVs and their respective charging stations. However, there are a few critical aspects industry experts say to keep in mind when assessing the risks associated with EVs.

Cyber Threats:

An increased concern for EVs Charging stations are vulnerable to cyber hacking. Electric vehicles rely on data, software, sensors, and artificial intelligence to coordinate operational systems. This connectivity comes with cybersecurity dangers from malicious attacks, hacking, data compromise and system outages. Cyber risks can differ depending on how “smart” the charger is.

For instance, if the charger can be controlled remotely an additional access point exists for malicious actors to gain access to the charging station and the vehicles it connects with. Hacking risk also varies depending on whether a charger is installed at home or a public location. Should a breach to the charger occur, the entire network could be at risk.

Garaging & Charging EVs: It’s hotter than you think!

Many homeowners are likely to keep their new electric vehicle stored in their garage. While unlikely, fires have unexpectedly occurred caused by the vehicles’ lithium-ion batters. Unlike customary internal combustion vehicles, which burn around 1000 degrees Fahrenheit, fires from EV batteries burn at temperatures around 3000 degrees. Many fire departments, especially volunteer companies, do not have the equipment, man power, or water supply to extinguish fires from EV batteries.

More alarming are the EVs that are garaged in parking structures where residents live above. Local codes may require sprinkler systems installed in such developments. However, some systems may not offer the necessary water capacity sufficient for this new exposure. Even worse, older developments may not have sprinklers altogether.

It is also worth noting, many EV battery fires have a high potential of reigniting even after being extinguished for several hours. An EV’s connections and wires from the supply to the vehicle also pose increased hazards. A widely unknown exposure is many EV batteries emit hydrogen gas when charging. This could further exacerbate the fire hazard, especially in poorly ventilated garages. Additionally, concentrations of hydrogen gas pose a life safety hazard when inhaled a greater concentration.

Charging Stations: Around the property

Charging vehicles naturally puts a higher strain on your home, building, or community association’s electrical systems. Additionally, exposure of high voltage electric shock to users when handling the cables now becomes an exposure that did not exist just a few years ago. The cables used for electric vehicles are larger and heavier than typical electric cables. These cables present a considerable tripping hazard. Poor positioning of the charging station can lead to cables being laid across pavements or to hang with the potential to cause injury and/or damage to the EV and charging apparatus.

Now What?

Most insurance carriers have not made any changes to their policy forms or appetites…yet. The insurance industry is monitoring data and how these new technologies develop. Once enough data is available and trends can be established, its only inevitable the industry will respond.

Until then, implementing a few loss control measures to prevent unforeseeable losses is in your best interest. Below are a few recommendations we have prepared to best protect your assets and community

  • Check with local building codes and speak with an engineer (especially if underground or garage charging is done) to verify the structure has proper ventilation and can withstand the temperatures of an EV fire.
  • Speak with your local fire department and sprinkler companies to see if they have any concerns specific to your building and location.
  • Shared outdoor charging stations should be installed at least 25 feet away from buildings.
  • Develop a plan in the event of an emergency should someone receives a high-voltage electric shock.
  • A maintenance plan should be in place to prevent any additional concern of electrical fires.
  • If it is necessary to run a cable across a walkway, look to invest in a cable protector that allows people to walk over the cable lying flat as well as protecting it from damage.
  • Speak with a representative or the manufacturer of the charging station to understand how communication and data is relayed with the device, if any at all.

New technologies bring about new exposures. Time will tell how the insurance industry will react to the public’s interest of electric vehicles. Until then, monitoring the hazards, assessing the risks, and implementing practical risk management strategies will allow early adopters to enjoy the latest gadgets and software.

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The surge in popularity of electric bikes, or e-bikes, as a sustainable and efficient mode of transportation is undeniable. Their eco-friendly appeal and capability to cover longer distances effortlessly have made e-bikes a preferred choice for many commuters. However, amid the growing trend of e-bikes, it’s imperative to bring attention to a frequently overlooked aspect – the potential hazards associated with the batteries powering these electric marvels.

  1. Power Source: Lithium-ion Batteries E-bikes primarily utilize lithium-ion batteries for their power requirements. While these batteries offer high energy density and extended life cycles, they are not without inherent risks. Lithium-ion batteries are susceptible to issues such as overheating, short-circuiting, and even thermal runaway, posing potential hazards.
  2. Overcharging Concerns: Overcharging is a common hazard associated with e-bike batteries. Charging the battery beyond its recommended capacity can lead to increased temperatures, reduced lifespan, and, in extreme cases, a fire risk. Manufacturers typically provide guidelines on proper charging practices, and it’s essential for e-bike owners to adhere to these recommendations.
  3. Battery Fires: The risk of battery fires is a significant concern for e-bike users. While such incidents are relatively rare, the consequences can be severe. Manufacturing defects, physical damage, or overcharging can contribute to thermal runaway, potentially causing the battery to catch fire. E-bike owners must be aware of safety measures and handle batteries with care.
  4. Storage and Transportation Risks: Proper consideration is required when storing and transporting e-bike batteries. Exposure to extreme temperatures, especially heat, can expedite battery degradation and increase the likelihood of malfunctions. E-bike users should follow guidelines for appropriate storage and transportation to mitigate potential risks.
  5. Impact on Environmental Sustainability: Beyond immediate safety concerns, the environmental impact of e-bike batteries raises questions about their long-term sustainability. The manufacturing, usage, and disposal of lithium-ion batteries contribute to environmental pollution. As e-bike popularity continues to grow, addressing the environmental consequences of battery production and disposal becomes crucial for a truly sustainable future.

While e-bikes provide a convenient and eco-friendly alternative to traditional transportation, users must be aware of the potential hazards associated with their batteries. Collaboration among manufacturers, regulatory bodies, and users is essential to implement safety measures, guidelines, and sustainable practices. By understanding and addressing these hazards, we can continue to enjoy the benefits of e-bikes while minimizing the risks they pose to both individuals and the environment.

 

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Over the last three years, policyholders have experienced one of the hardest markets the insurance industry has seen in over 15 years.  A perfect storm of factors included supply chain issues, nuclear jury verdicts, inflation, and natural disasters to name a few. Of course, a global pandemic acted as the catalyst of it all. The good news is that 2024 brings some new hope for relief.

The hardened market from 2020-2023 led reinsurance carriers to do more with less. Underwriters tightened capacity, increased attachments (deductibles) for insurers, and reduced risk appetite.  After experiencing losses five of the last seven years, this approach resulted in a profitable year for the largest reinsurance carriers.  Fitch Ratings reported global reinsurers posted a 21% return on equity in 2023.  This is up 18 percentage points from the prior year.

Profitability in 2023 is likely to attract additional investor capital potentially unlocking much needed capacity within the market.  In addition to new investment, retrocession or simply “retros” (reinsurance for reinsurance companies) is also becoming more available.  “When there’s more retro capacity available, eventually that makes insurance for policyholders more available and affordable,” says Bill Dubinsky, Chief Executive of Gallagher Securities.  It’s hopeful this influx of investment and retro availability will take the pressure off the premiums policyholders have been feeling over the last two renewal cycles.

Important to note, reinsurers are remaining restrictive with their appetite and keeping attachments higher.  James Victor, Chairman of Gallagher RE comments “there is a big demand for low level, frequency protection and reinsurers are really reluctant to provide that. The lessons of 2023 have shown that reinsurers really don’t want to provide cover in that area and there really isn’t any capacity in the traditional sense” Simply said, reinsurers are not looking to pick up the low level frequency losses retail insurance companies had typically been able to lay off.  As such, policyholders in the smaller and middle markets are less likely to see any benefits from the changing tide.  Same still, large market insureds won’t see immediate results either.  These restrictive treaties with the retail insurance carriers still keep premiums elevated.

“I see a property market that has bumped up against the ceiling of the hard market,” says Sean McViker, Executive Vice President of Casualty at XS Brokers, a commercial insurance wholesaler in Boston, Massachusetts. “Also, one that’s showing discipline and not racing back to old bad habits. Meaning a moderate softening over time, cautiously.”

By no means are we over the mountain. It is fair to say, the market has only climbed to reach the edge of a plateau.  Retail carriers are not rushing to change their underwriting guidelines nor turn soft on pricing.  David Preibe, Chairman of Guy Carpenter echoes this sentiment.  “We are near the highwater mark and pricing may start to moderate as reinsures seek to utilize the excess capital…. Pricing has normalized across reinsurance contracts. I feel we are headed towards a more competitive marketplace in greater optionality. Who knows, this business can change on the dime.”

What to expect:

Our research indicates policyholders should anticipate premium increases on renewals. However, the size of the increases should not be as great when compared to the past few years of renewals.  It is possible to say the hardening market is coming to an end in certain classes. How long it stays hard, is certainly another question.

“We are now approaching the inflection point of the S-curve.  How long we stay up there is a question of capital supply,” says Preibe.  The industries and coastal territories that experienced double digit percent increases on their 2022 and 2023 renewals, should see less severe increases in 2024.

While greener pastures are on the horizon, by no means are we through the woods.  One good catastrophic loss could set back the gains of 2023 and reaffirm the hard market.  At this point, time will tell if the storm clouds are dissipating or if there’s another squall ahead.

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Prepared by:
Alexander Borg, CIC, CRM, CRIS
Vice President – Underwriting & Risk Management

Navigating the Hardened Market

Over the last three years, policyholders have experienced one of the hardest markets the insurance industry has seen in over 15 years.  A perfect storm of factors included supply chain issues, nuclear jury verdicts, inflation, and natural disasters to name a few. Of course, a global pandemic acted as the catalyst of it all. The good news is that 2024 brings some new hope for relief.

The hardened market from 2020-2023 led reinsurance carriers to do more with less. Underwriters tightened capacity, increased attachments (deductibles) for insurers, and reduced risk appetite.  After experiencing losses five of the last seven years, this approach resulted in a profitable year for the largest reinsurance carriers.  Fitch Ratings reported global reinsurers posted a 21% return on equity in 2023.  This is up 18 percentage points from the prior year.

Profitability in 2023 is likely to attract additional investor capital potentially unlocking much needed capacity within the market. In addition to new investment, retrocession or simply“retros” (reinsurance for reinsurance companies)is also becoming more available.

“When there’s more retro capacity available, eventually that makes insurance for policyholders more available and affordable,” says Bill Dubinsky, Chief Executive of Gallagher Securities.  It’s hopeful this influx of investment and retro availability will take the pressure off the premiums policyholders have been feeling over the last two renewal cycles.

Important to note, reinsurers are remaining restrictive with their appetite and keeping attachments higher.  James Victor, Chairman of Gallagher RE comments “there is a big demand for low level, frequency protection and reinsurers are really reluctant to provide that. The lessons of 2023 have shown that reinsurers really don’t want to provide cover in that area and there really isn’t any capacity in the traditional sense” Simply said, reinsurers are not looking to pick up the low level frequency losses retail insurance companies had typically been able to lay off.  As such, policyholders in the smaller and middle markets are less likely to see any benefits from the changing tide.  Same still, large market insureds won’t see immediate results either.  These restrictive treaties with the retail insurance carriers still keep premiums elevated.

“I see a property market that has bumped up against the ceiling of the hard market,” says Sean McViker, Executive Vice President of Casualty at XS Brokers, a commercial insurance wholesaler in Boston, Massachusetts. “Also, one that’s showing discipline and not racing back to old bad habits. Meaning a moderate softening over time, cautiously.”

By no means are we over the mountain. It is fair to say, the market has only climbed to reach the edge of a plateau. Retail carriers are not rushing to change their underwriting guidelines nor turn soft on pricing. David Preibe, Chairman of Guy Carpenter echoes this sentiment. “We are near thehighwater mark and pricing may start to moderate as reinsures seek to utilize the excess capital….Pricing has normalized across reinsurance contracts. I feel we are headed towards a more competitive marketplace in greater optionality. Who knows, this business can change on the dime.”

What to expect:

Our research indicates policyholders should anticipate premium increases on renewals.However, the size of the increases should not be as great when compared to the past few years of renewals. It is possible to say the hardening market is coming to an end in certain classes. How long it stays hard, is certainly another question.“

We are now approaching the inflection point of the S-curve. How long we stay up there is a question of capital supply,” says Preibe. The industries and coastal territories that experienced double digit percent increases on their 2022 and 2023 renewals, should see less severe increases in2024.

While greener pastures are on the horizon, by no means are we through the woods. One good catastrophic loss could set back the gains of 2023 and reaffirm the hard market. At this point, time will tell if the storm clouds are dissipating or if there’s another squall ahead.

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CHALLENGES AND EXPECTATIONS

Business owners and asset managers with large real estate schedules rely on proper planning and advanced notice of upcoming expenses. The 2023 property insurance market poses challenges for these insureds. There are several factors that are having a significant impact on the US property insurance marketplace. Catastrophic weather events, inflation, valuations, and reinsurance costs have contributed to the challenge for large property schedules.

Unfortunately, a continued hard insurance market remains on the horizon for the foreseeable future.

According to the Insurance Information Institute, Hurricane Ida (2021) was the second costliest hurricane on record, with $36 billion in insured losses. As of January 2023, Hurricane Ian is nearing $100 billion.

The frequency and severity of major hurricanes making landfall in the U.S. five out of the last six years, is arguably the largest driving force affecting the property insurance market. Each storm making landfall in high density areas with a high aggregation of property value, is a the “perfect storm” for insurers poised to experience big losses.

Hurricanes aside, wildfires on the west coast have consumed hundreds of thousands of acres, making record catastrophic losses problematic for the entire nation.

On a global scale, insured losses from natural catastrophes reached $130 billion in 2021 — 18% higher than 2020. Hurricanes Ian was the back breaking straw to further harden the market. Insurance carriers are responding with restricted appetites to assets exposed to CAT losses in their effort to reduce volatility to their balance sheet.

Additional Factors Impacting the Market

Global inflation, higher interest rates, and a general economic uncertainty were unpredicted factors that resulted in increased cost of capital for insurers. As funding options tighten, rates will rise to corelate with carriers increased capital expenses. Even though inflation seems to be settling, its impact is creating a new benchmark for asset valuations and insureds falling short with properly covering their properties to replacement cost. The time of static valuation reporting is over. Carriers are reporting portfolios of insured property values are off by 30% or more.

Parallel with the aforementioned, the following has further complicated the marketplace:

  • Carriers requiring increased valuations on insured property schedules
  • Updated wind/quake models anticipate more loss exposure to carriers’ portfolios
  • Specialized programs and carriers have less capacity to deploy
  • Social inflation of jury awards (liability)
  • Nuclear verdicts (liability)
  • Supply chain challenges (business interruption)
  • Aftereffects of the COVID-19 pandemic
  • Russia/Ukraine conflict

All of which continue to compound the cost of losses.

Reinsurance Treaties

Reinsurance is the insurance an insurance company buys. Retail insurance providers are not shielded from the costs of their own insurance protection. Carriers are experiencing difficulty with their own treaty renewals. Lloyd’s of London and European treaties, have not been issued or have been delayed due to market uncertainty. The largest reinsurance providers in the property insurance market announced they will be prioritizing profitability over growth. They indicated their focus will be on eliminating all-perils catastrophe coverage. It is fair to expect carriers to apply higher deductibles or SIRs on renewal policies as well as limiting terms and conditions on policy renewals. Inflation has eroded past rate increases reinsurers have secured in 2021 and 2022. As such, it is expected for reinsurers to remain steadfast on increasing rates for 2023.

Reinsurance is expected to restrict the capacity available in the market regardless of price, terms and/or conditions offered. With restricted capacity aka limited supply of available coverage, and a 32% increase of coverage demand in the space, higher premiums are natural to follow.

Summary

Given the current factors, it would be prudent for policy holders with large real estate schedules to expect increased premium, changes to terms & conditions, and overall challenges with the insurance marketplace.

Assets exposed to catastrophic risks, especially coastal and frame real estate, are due to see the biggest challenges and potentially the need to restructure their coverage altogether. Larger schedules with sizable total insured value will require tactical underwriting to secure desired limits and comprehensive terms, while also keeping premiums tolerable.

With a tough property market upon us it’s important to work with a broker who has in-depth knowledge of the marketplace, strategies, carrier relationships to navigate the marketplaces, and access to resources that can get the job done right.

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Since 2020, insurance carriers have increased premiums due to the uncertainty the pandemic created.  Now in the post-covid era, the economic and social fall out has led carriers to significantly increase their rates.  There’s no sense of sugar coating it.  Here are the reasons why.

Spotlight on Inflation

Yes, its true, inflation has come down off its high of 9.1% in June 2022.  However, inflationary concerns have carriers concerned about underweighted balance sheets.  In late 2022, a McKinsey report estimated that inflationary costs added approximately $30 billion of unexpected loss expenses industry wide.  Increased medical, construction, repair, and overall labor costs are all driving up losses.  These increased loss expenses drive actuaries to increase rates underwriters apply to premiums.

Inflation has also driven up ratable exposures.  Many manufacturing, distribution, processing, and construction insureds are seeing their top line revenue increase, not due to having more work or producing more product, but rather increased pricing to reflect inflationary expenses.

Solution: A candid and detailed conversation with your trusted insurance professional affords the underwriters a clear picture of what’s going in on your business.  With today’s market conditions, creative underwriting and levering strong relationships are key to successfully keeping premiums manageable.

Strained Investment in the Reinsurance Space

Another critical factor driving premiums, especially in the excess casualty (liability and umbrellas) space, is the limited capital invested in the reinsurance market.  Private equity and investors have been putting less money into the reinsurance carriers because the returns have been diminishing as compared to other investment options.  The global inflationary environment has eroded returns, reducing the incentive for investment. The lower capital injected into the industry has limited coverage offering availability (supply), while the demand for umbrella / excess liability coverage has grown, thus premiums have increased.

Investors are also changing their risk appetite favoring upper tiers on liability towers.  In years past many carriers were offering excess liability immediately after the primary liability limits for around 35-45% of the primary liability premium.  More and more carriers are only interested in offering terms after the first $5MM of limits.  The limited insures now offering lead excess or “buffer layer” are now seeking 65% to 100% of the primary premium. Since 2019 excess casualty premiums are up 300-400%.  It’s becoming more common 3-4 carriers are needed to achieve the same limits of liability a single carrier could offer just 3 years ago.

Public Opinion Drives Settlements

The other reason premiums have increased is because of “social inflation” and “nuclear verdicts” when it comes to jury awards.  Some carriers refer to this as “legal system abuse”.  The industry is seeing plaintiffs file more lawsuits when compared to the last few years.  While some suits may be frivolous or unfounded, carriers are required to defend these suits, contributing to the loss expenses.

As it pertains to the excess liability and umbrella market, jurors are awarding plaintiffs significantly higher awards than ever before.  Many of these awards are breaching the primary general liability policy and impacting the excess liability & umbrella layers.  Several carriers (Travelers, Liberty Mutual, Hartford, State Farm, etc.) have reported 30-40% increases in awards as compared to a decade ago.   This is due to a few a factors.  The public sentiment of corporations and insurance carriers in specific judicial territories (Metro NY, California, Cook County, IL, Metro Atlanta to name a few) are less than favorable.  Influenced by mass / social media reporting unscrupulous business practices of some corporations, this negative public perspective influences juries, often times viewing a large award as justice against corporations or institutions.

Additionally, juries are now comprised of younger members of the populace from the millennial generation and Gen Z.  These younger jurors frequently have misconceptions about reasonable awards due to portrayals of affluence at their fingertips on every social media platform.

Lastly, the rate of information exchange is unprecedented.  Plaintiffs’ counsel, jurors, and spectators communicate the status of the case in real time, often with their respective inherent biases.  This immediate information exchange influences jurors to issue larger than normal awards.

Nuclear Verdicts and Litigation Investment

The Chubb Bermuda 2022 Report highlights the growing settlements in various sectors, including manufacturing, real estate, and construction, with some exceeding $1 billion. Parathon Strategies calculates the median verdict against corporate defendants has increased by 55% since 2010, with total corporate nuclear verdicts skyrocketing from $4.9 billion in 2020 to over $18.9 billion in 2022. The average verdict has also doubled in the last 12 years, reaching $41.1 million.

The reason this new factor is making such an impact is due to new investment in litigation funding.  This allows plaintiffs to hold out for higher settlements and additional resources to be deployed by plaintiff’s counsel to solidify investor returns.  In 2021, Chubb reported litigation funding surpassed $17 billion with no signs of slowing.

What to expect for 2024

With the insurance industry losing $27 billion in 2022, casualty carriers are seeking 8-12% increases with the expectation their own loss costs are going up 9% on average.  For habitational and construction industries, most specifically in the most litigious territories mentioned above, expected steeper increases.

The challenges facing the US Casualty Insurance Marketplace in 2023 are multifaceted, driven by inflation, legal developments, and evolving industry dynamics. It is essential for business owners stay informed, adapt strategies, and engage in open dialogue with their insurance professionals to navigate these complex waters effectively.

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The personal insurance marketplace (homeowners and automobile alike) is becoming more and more challenging due to several factors; increased cost of construction materials, supply chain & labor challenges, legal system abuse, and restricted treaties with reinsurers are just a few.  Combined with the major natural disasters the country has seen from coast to coast – forest fires & mudslides in California, Hurricane Ian in Florida, hailstorms/freeze ups in Texas, etc.- the whole industry is seeing higher premiums, limited carrier appetites, and more stringent underwriting from nearly every personal insurance carrier.

The homeowners’ insurance marketplace has proven difficult for even the largest home insurer in the country (2022), State Farm.   In late May 2023, State Farm announced they will no longer be offering new policies in the state of California.  California saw more than 7,490 wildfires in 2022.  In a statement on Friday (June 2nd) State Farm commented, “[this market is the] hardest in a generation.”  Regardless of their 18.4% market share, pulling out of California market was a critical decision to protect the company’s bottom line. In a prepared statement, State Farm said they, “made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.”

On the east coast, Florida has seen several carriers significantly reduce coverage offerings or leave the state entirely.  In 2021, 3 homeowners’ carriers suddenly departed the market leaving more than 54,000 policy holders scrambling (Southern Fidelity, Gulfstream Property & Casualty, and Universal Insurance Co of North America).   While catastrophic weather losses were a considerable factor, the driving reason for the exodus was the rampant lawsuits filed for roof damage claims by attorneys and dishonest roofing contractors, not the actual policy holders.  Many of these suits are unsubstantiated.  Nonetheless, carriers are obliged to respond, defend, litigate, and ultimately settle.  In 2020, Florida insurers reported to have lost more than $1.7 billion collectively.  Earlier this year, more than 250,000 lawsuits were filed the day before Governor DeSantis signed House Bill 837 and Senate Bill 360 into law. Both bills are designed to help reduce the number of frivolous lawsuits in the state, driving the state’s inflated insurance rates.

According to CoreLogic’s 2023 Hurricane report, NOAA is calling for 12-17 named storms, 5-9 hurricanes, and 1-4 major hurricanes to affect the United States.  While this prediction is less than 2022, this report still calls for an “above normal season.”

The Metro NY Area has 4.3 million single and multifamily homes at risk to hurricane force winds.  This exposes insurers in the New York territory to more than $2.4 trillion in damages should another major storm slam Long Island and the surrounding areas.  The coastal nature of downstate New York, Long Island, and southern Connecticut coupled with the concentration of high value homes poses a unique threat the actuaries are pricing into the market.

While one may personally never experience a loss in their individual neighborhood, insurance is a global industry.  The basic principles, the law of large numbers and spread of risk affect every policyholder, even in the most innocuous locations.

Pure Insurance Company released on May 31st, their most affected states. While some states are seeing flat rate changes, others are experiencing double digit rate increases.  Wisconsin can expect to see a 12.9% rate increase, Michigan’s overall rate effect is 14.9%, Texas is seeing an overall rate effect of 19.9%.

SO WHAT ARE YOUR OPTIONS?

Despite these challenges, a qualified independent agent can help navigate you through the turbulent times we are seeing in the personal insurance marketplace.  Exploring coverage options from regional carriers, with limited or no exposure to catastrophe and litigious territories, could be a potential solution.  Increasing your policy deductibles is another way to stem premium increases.  Also consider securing coverage for your home and auto with the same carrier.  The carriers’ multi policy discounts could mitigate premium increases.  Nonetheless, a candid conversation with your trusted broker about your assets, exposures, and risk tolerance is the best way to ensure you maintain the peace of mind you rely on should disaster strike.