Advisen Front Page News
- Monday, November 7, 2022
'Progress, not perfection' urged for tougher property market: Advisen panels
Advisen
'Progress, not perfection' urged for tougher property market: Advisen panels
By Erin Ayers, Advisen
Tough times lay ahead for many property insurance buyers and industry experts speaking at Advisen’s Property Insights Conference in New York differed on just how challenging the market will be, but agreed that property valuation will remain a key focus for the foreseeable future.
“What we’re facing is going to be harder than any of the other markets that we’ve seen in the past few decades,” said Brian Boornazian, executive chairman of Ryan Re, comparing the post-Ian landscape to the liability insurance crisis of the 1980s.
Boornazian attributed the coming capacity crunch to the fact that reinsurer results have been worse than their clients for over five years. Hurricane Ian is “punctuating what’s been a perfect storm of conditions that has been contributing to these poor results,” he said.
The last few years – already marked by high prices and tough underwriting – will seem like a soft market, he added. The Jan. 1 reinsurance renewals will hint at the impact of Ian but signs of trouble are already here -- Boornazian said he saw reinsurance treaties already having difficulty being completed at Nov. 1, with primary insurers retaining more risk.
During another session, Joe Peiser, commercial risk leader for North America at Aon, said he agrees capacity for catastrophe risks will be tight, but isn’t “buying into the doomsday scenario.”
The last four years “haven’t been a pleasant picnic” for insurance buyers, Peiser said, and the market has already made strides toward addressing market troubles. However, he rejected the comparison to the 1980s liability crisis, a historic hard market largely driven by the development of asbestos and environmental losses.
Peiser emphasized the need to “find solutions rather than just closing the door” to risks. Brokers aren’t seeing a drop-off in demand and clients have been willing to take on more risk.
“We’re not seeing wholesale abandonment of the industry, so I don’t think we should abandon the customer,” he said.
On one point, however, several speakers agreed – both reinsurance and primary market capacity will flow to buyers who demonstrate a commitment to accurate property valuations and building relationships with their insurance partners.
From a reinsurance perspective, severe undervaluation is “not going to be stood for anymore,” Boornazian said.
“We’re seeing losses settled at two, three times their scheduled values,” said Boornazian. Business interruption has also been a major contributor to losses, he added.
The persistent problem of property valuations represented a theme throughout the day. In a “State of the Market” panel discussion, brokers and underwriters highlighted the impact of inflation and unexpected losses on prices going forward.
While conversations on valuations have been ongoing for years, underwriters “sharpened the pencil” earlier this year, according to Lindsay Shipper, managing director and Southeast property placement leader at Marsh.
“There was never really a consequence for lack of a better term and therefore, I think a lot of clients didn’t pay the attention that it probably deserved,” she said. Losses outpacing values by significant margins have driven the issue.
“We all needed to be doing better on values,” agreed Jordan Corlett, director of large property at CNA Insurance. Valuation was discussed in years past but the gap between reported and actual values was not as significant as it is now, he added.
Martha Bane, property practice leader for Gallagher, said the industry and buyers face a “catch-up period” since construction costs have gone up 28% in the last five years. Earlier communication is necessary, she said, since delivering news of a mid-single-digit rate increase combined with an 8% to 10% increase in values is a difficult conversation to have a week before renewal.
Bane advised buyers and brokers to “not be complacent” and to provide as much data as possible to underwriters to be able to access as much capacity as possible.
“We have more technology at our fingertips than ever before. Looking at some of our clients where we would historically collect 15 data points 20 years ago, we’re at over 100 data points and that’s where the industry needs to go,” she said.
Christopher Curtin, senior vice president and head of U.S. property for Everest Insurance shared a few “real-life” examples of underreported values -- $92 million reported value for a location with a $142 million loss, not including business interruption. He also cited a property valued at $18 million with a $40 million actual-cash-value loss. He emphasized the need for both buyers and underwriters to take steps to address the issue.
“We have to get there collectively as a group. And we have a lot of conversations with our customers and our brokers on how to get there and I just keep urging, it’s progress, not perfection. There’s a belief that this is your problem. It’s our problem, so we need to shift the conversation,” Curtin said.
All buyers of insurance and reinsurance should expect to pay more, he added, and the tight capacity won’t be limited to catastrophe-exposed risks.
“As a buyer, like you, I am concerned … you’re going to pay a lot more and not only are you going to pay a lot more, you’re going to pay a lot more for potentially less coverage,” he said.
