The soft US property insurance market is creating a future insurance-to-value problem as competition encourages declared values to slip, according to two Amwins real estate practice leaders.
Adam Terry (pictured on the right), executive vice president and national real estate practice leader for property at Amwins, said an influx of capacity has widened the field of carriers, managing general agents and facilities competing for business. That has made price more prominent in placement decisions, even as questions remain over providers’ long-term support.
“There are so many options available that you want to pick the partners who are going to be in it for the long haul for your insureds, not always the absolute lowest price, which is what a lot of people focus on most,” Terry noted.
The concern extends beyond carrier selection. During the hard market, insurers placed greater emphasis on ensuring property values reflected replacement costs. Terry said some of that discipline is now eroding as markets compete more aggressively.
He added: “In the soft market, things start to deteriorate that we had built up in the hard market, like insurance to value, because people are pushing insurance on that.”
This slippage may have limited immediate impact while pricing remains competitive. However, it could become much more visible when capacity tightens or insurers seek stronger rates. Policyholders whose values have not kept pace with costs could then face two corrections at renewal, Terry warned.
The scale and speed of recent capacity changes are also complicating property placements. New entrants have arrived while established markets have broadened appetites that were previously more narrowly defined.
Terry said: “There have been a significant number of additional markets and MGAs, and markets changing appetite.” He added: “So you historically thought of them for one thing, and now they're starting to expand and grow and do things that used to be on their do-not-do list.”
The environment requires broad market coverage because a carrier that once would have declined a class may now consider it in pursuit of premium targets. Close contact with underwriters and firm declinations have consequently become more important.
Conditions in real estate casualty remain firmer, although the pace of increases has moderated, according to Corey Alison (pictured on the left), executive vice president and national real estate practice leader for casualty at Amwins.
“Our market has been in a hard market for a while, but there's been a little bit of a change, I'd say, in the past six months to a more balanced environment,” Alison told Insurance Business. “It's not a soft market in any way, but you've seen a reduction in the increases we've seen in previous years.”
He said a primary placement without deterioration in existing losses or new claims might have drawn a 10% to 15% increase last year. More recently, the range has moved toward 3% to 5%, while flat renewals are no longer out of the question. Additional capacity higher in excess towers has also introduced more price competition.
Even so, challenging losses and exposures in states including Texas, New York and California can make tower construction more difficult. Alison said wholesalers are increasingly using proprietary products, new MGAs, London capacity and sidecars to assemble coverage.
Lender requirements remain another persistent obstacle, particularly on complex real estate transactions involving multiple lenders with different standards. Addressing those requirements may involve waivers, evidence of a broad marketing effort, higher retentions or multiple policies for specific exposures.
“There are ways that we can do it that may not be your conventional single policy and may need multiple policies,” said Alison. “But I would say that still continues to be the big obstacle, just butting heads with the lenders.”
Taken together, the trends point to a market in which abundant property capacity is relieving immediate pricing pressure while storing up valuation challenges for a later turn. The timing of that change is uncertain, but brokers should already be watching for the consequences.
