Alex Glickman Arthur J. is a Los Angeles-based Senior Managing Director, Global Practice Leader, Real Estate and Hospitality at Gallagher & Company. He has led Gallagher’s real estate and hospitality practice since 2001. Ms. Glickman spoke business insurance Deputy Editor Claire Wilkinson on property insurance market conditions.
How would you describe the current property market?
Word on the street has been in order in both the London market and the US market. Reinsurance renewal went well. We are seeing that carriers want to maintain their position, and they also have excess capacity. So, there is definitely rate relief for commercial customers. We’re seeing everything from mid-single-digit growth for excellent risks to some cases where it’s flat. There is competition. This is a function of asset class, geography and loss history.
Is there capacity available for disaster risks?
Capacity is available. Price is the driver but there is more capacity this year than last year. Last year when the reinsurance market effectively collapsed and carriers had to reduce their own exposures, there was sheer panic and much scrambling because they could not buy more reinsurance due to availability or cost. . This year, reinsurance capacity appears to be coming back into the market, and last year many underwriters downsized and shed risks deemed unprofitable. Most carriers have right-sized their books this year and are looking to grow.
How is the California property insurance market specifically being impacted by extreme weather events?
Certainly, underwriters are now mindful of the wildfire score and are cutting capacity. State Farm is exiting the multifamily market, which is going to have a meaningful impact in terms of multifamily owners becoming smaller mom-and-pop owners. Now they have to find capacity, which will be much more expensive. London and E&S markets will be where this volume will be seen. For commercial buyers, there is more earthquake potential this year than last year, which is very favorable, but underwriters are demanding more secondary characteristics. They’re really focused on wildfire scores, and they’re focused on building and roofing structures and wildfire mitigation.
Has this become a market where secondary threats create conditions?
Swiss Re recently reported that total insured catastrophe losses for 2023 were more than $100 billion. More than $60 billion of this was for severe convective storms and unmodeled hazards such as wildfires, tornadoes, and winter storms. That’s a lot of money and it’s ongoing, so underwriters are very focused on looking at those risks and charging for them.
What can buyers do to navigate this market?
Clients need to understand what their risk appetite is and where they can take on as much risk as possible, either through captives or by understanding how they can finance it, off their own balance sheets. Looking, at your cost of capital. This is going to put pressure on the markets, because once customers leave the market, they generally do not go back. Many customers are talking to lenders, trying to insist on old requirements where for example, if they were exposed to wind, they would have had 100% replacement cost for the property, even if for wind. The maximum possible loss was 22%. Science matters. By using science to determine PML and if customers can prove they have invested appropriate capital to improve their risk profile – roofs that may have become obsolete are repaired Or replaced, that any issues related to water damage have been fixed – they will be in a better position to navigate the market.
What is your outlook on the property market by 2024?
Assuming this is a benign hurricane season, we will continue to see increases in capacity, we will see continued stabilization in pricing and less of the quick reactions seen in 2023. If significant wind events and other disasters occur, I think we’ll be back to riding the Bucking Bronco.
