As the real estate industry continues its journey to recovery from the wake of the pandemic, a focus on organizational resilience has never been more important. The continuing effects of COVID-19 have dominated over the last several years, and these challenges have also had a major impact on insurance. Add catastrophic losses from hurricanes, hailstorms and wildfires to the mix and you’ve got a pile of costly claims. While these catastrophes are extreme, they are no longer rare. Real estate owners and operators should expect more of the same in 2022, affecting all sectors (especially residential). For many real estate insurance carriers, these losses have far surpassed expected claim costs, leading to what the insurance industry refers to as a hard market.
Becoming more resilient through steps taken to mitigate risks, especially against new challenges and exposures that have arisen, will greatly influence insurance premiums and coverage availability throughout 2022 and beyond.
The current state of the insurance market requires businesses to present themselves in the best possible light to enable their brokers to present the best-case scenario to insurers. This means that, in partnership with your insurance advisor, you must demonstrate to the marketplace why they should want your business (i.e., good loss history and corrective measures taken to prevent similar losses from reoccurring, proactive risk management/ transfer practices, proper safety protocols and property upgrades).
In layman’s terms, a “hard insurance market” is the upswing in a market cycle when insurance premium rates are escalating, and insurers are disinclined to negotiate terms. Underwriting standards tighten and insurers closely monitor insurance rates and manage coverage capacity. Through the remainder of 2022 and beyond, insurance buyers will continue to feel the effects of the hard market in the hospitality industry.
Underwriting losses, poor industry results, decline in investment income due to lower interest rates, an increase in natural disaster claims, social factors such as “social inflation” of claims and “once-in-a-century” events such as COVID-19, are all factors that directly con- tribute to the state of the market.
On the property insurance side, water damage and catastrophic weather events have been costly for insurers while on the liability side, increasing claims for slips and falls have led to expensive lawsuits. Some companies have stopped offering hospitality insurance, exiting the space, which results in fewer players in the market. The economic fallout from the global pandemic includes lower interest rates, pushing premiums higher yet again as insurers can’t rely on investment behind the scenes to remain profitable. Additionally, concern about COVID-19-related liability claims is tightening the market even further.
What Businesses Can Do
Within such an environment, underwriters carefully review submissions, questioning and reviewing every detail of information on the application. Together with your insurance broker, work toward a professional submission that highlights the strengths of your risk management efforts.
Completing an insurance review and gather- ing information takes time. Here is what you can do to improve your situation in this hard market:
- Be proactive: Providing your updated information to your broker early in the renewal process will allow you to obtain your renewal terms sooner and give you time to address options with your broker.
- Be complete: Insurance underwriters have limited time to go back and forth with your broker requesting missing information. As- sist by ensuring your file is complete.
- Be current: Improve maintenance, implement risk services recommendations and undergo an operational evaluation. Under- writers favor and value clients that take care of their business.
These are just some of the ways you can get ahead of rising premium costs and navigate the current state of the insurance market. Now more than ever, it is imperative to work with your insurance advisor to review your coverages and to understand what your P&C policies cover, what they don’t and the best ways to mitigate the individual and unique risks of your properties.
Frank DeLucia
Hub International Northeast
Woodbury, NY
frank.delucia@hubinternational.com
(212)338-2395
