The commercial real estate insurance market is facing a perfect storm: increased catastrophe risk levels and activity, economic instability, and underwriting constraints. In response, brokers and carriers are looking beyond traditional cover – and toward structures that prize speed, specificity, and adaptability.
“While traditional property insurance has become less available on the admitted and standard lines side, the excess and surplus line sector [is] as competitive as ever,” said Sam Baig, president of Amwins Brokerage. “There's an abundance [of] capacity, robust competition and the ability to exercise freedom of rate/form is resulting in a broadening of available coverage terms and conditions.”
That competition is making room for creative approaches – particularly parametric insurance and captives – in sectors where volatility has changed the rules of engagement.
Parametric insurance, once reserved for natural perils like flood or wind, is gaining traction in the large commercial account space. “In today's environment, parametric solutions are most useful for California wildfire exposures,” Baig said. “Lots of companies are turning to parametric solutions to solve gaps in cover that don't exist [in] the commercial marketplace.”
The evolution is noticeable. “The firms purchasing parametric products are more than Fortune 500 companies … trying to figure out how to cover business income and time element exposures in the absence of any direct physical damage to owned or insured property is a very complex undertaking,” he said.
Captives, long used in casualty programs, are also moving into new risk categories. “Captives are more useful in the casualty space than the property space – it almost has been that way because of volatility,” Baig said. But he noted a shift as claim settlement amounts are rising and social inflation pressures have changed settlement patterns. “It’s forcing some insureds, who have better and more predictable claim patterns, to explore [the] captive route on long tail casualty exposures/lines of coverage.”
Despite the proliferation of options, one foundational problem remains: poor data quality. “The biggest barrier I see is poor data quality and getting to market early enough for the marketplace to properly evaluate risks and provide a plethora of options to clients. Speed and clarity are equally important,” Baig said.
Without that, friction is inevitable. “The ones who aren’t setting realistic timelines and outcome expectations have clients that experience the most difficulties,” he said.
After years of cost inflation in construction and labour, valuations have finally caught up. “The majority of the insurance marketplace (buyers and sellers) have corrected and right-sized replacement cost valuations,” Baig said. “But, new tariffs and the resulting potential for material spikes in supply costs could trigger another wave of adjustment.”
Underwriters are also rethinking how they rate for secondary catastrophe perils. “You know, weather patterns are tricky these days. It’s non-cat, cat events occurring in areas where underwriters haven’t traditionally charged or not charged enough for exposures and that has created profitability issues,” he said. Despite this, he added, “as capacity flows into the marketplace and competition intensifies, you’re starting to see markets reduce the percentage deductibles for weather related events.”
Solvency, too, is under review. “There is more regulatory scrutiny on underwriting profit and risk based capital levels than ever before,” Baig said, calling insolvency risk a structural threat to the industry.
Beyond physical risks, legal risks are climbing fast. The rise of litigation funding is distorting settlements and inflating jury awards. “Funded litigation is creating … all kinds of havoc on the size of verdicts and how lawsuits are being settled,” Baig said.
States like Georgia and Florida have responded with tort reforms, but the issues continue to evolve. “There’s a big push in Congress for plaintiff transparency/disclosure if they have entered into a funded litigation arrangement,” he said. That lack of visibility, he argued, misleads juries about where settlement dollars are ultimately going. “Grandma’s receiving $100,000 … and the litigation fund is receiving hundreds of millions of dollars.”
Baig also sees challenges emerging from the changing shape of commercial real estate itself – particularly efforts to convert underutilized assets into housing. “Conversions overall have always been problematic,” he said. “When you convert an office building into [a] residential structure … the change in occupancy isn’t [always] a smooth process.”
The underwriting and coverage challenges that result are far from uniform. “Any insurance for that is not easy,” Baig said, citing potential for class-action risk, regulatory variance, and construction defect litigation.
Baig’s message to brokers is clear: tools are evolving but results still hinge on execution. Real estate risk transfer is more technical, more regulated, and more competitive than ever – and success requires better data, earlier outreach, and realistic alignment between stakeholders. “The ones who are prepared are the ones finding solutions,” he said.
