The commercial property insurance market in 2024 is facing a rapidly changing landscape heavily influenced by severe weather events. The United States, with the highest quantity and variety of natural disasters, experiences different levels of response to these stressors due to individual state laws and procedures.
While the Gulf Coast and Eastern Seaboard prepare for the hurricanes, the Western region faces escalating wildfire risks—meanwhile, the Midwest deals with tornadoes and severe thunderstorms.
Apart from their predominant weather threats, urban areas across the country must also contend with the growing concern of urban flooding, worsened by inadequate drainage systems and rapid development. It is of utmost importance for commercial property owners nationwide to adapt and survive this “new normal” of severe weather.
Nationwide Impacts of Severe Weather
The Gulf Coast is a highly vulnerable area, with coastal states experiencing many severe weather events yearly, such as hurricanes, storm surges, and tornadoes. The frequency of these events has resulted in a shift in the risk tolerance of the entire industry, which means that reinsurers must adjust their capacity and rates to make up for the losses incurred. Not only do property owners face an increase in rates, but they also must bear the rise in overall costs. According to CoreLogic, around 7 million properties are at risk of a storm surge from a Category 5 hurricane, with a total property value of $11.6 trillion. Despite this massive figure, more high-value properties continue to be built in these high-risk areas along the coast.
Some major insurance carriers have recently pulled out of the Gulf Coast market entirely, which caused insurance rates in Florida to be three times higher than the national average, and they continue to increase. Additionally, some of the smaller insurance companies in the area have gone insolvent, which has put even more pressure on the already stressed market. In 2022, the Louisiana Department of Insurance agreed to a 63% rate increase for their state insurer of last resort, citing, “The rate increase is almost entirely due to the increased cost of reinsurance for Citizens’ increased number of policies this hurricane season.” Commissioner Jim Donelon stated, “There’s no way to sugarcoat it – this increase is extremely painful, but it is required by law to ensure that Citizens can handle any potential future disaster for its many policyholders.”
As we move forward in the year, the ability of reinsurers to manage capacity issues will significantly impact the potential for rate stabilization across the insurance industry. If the demand for reinsurance remains high while the capacity remains low, the result will be a continued squeeze on over-exposed regions and vulnerable to environmental challenges.
In recent years, New Jersey in the Northeastern region has been experiencing hotter temperatures, leading to more severe storms. This is because the heat causes more water to evaporate, resulting in increased precipitation being carried into the atmosphere. Consequently, more than 40 extreme weather events have occurred, causing over $1 billion in damages to commercial facilities. The increased precipitation caused by rain and snowmelt poses severe challenges to commercial buildings. The freeze-thaw process, in which water enters cracks and expands when frozen, is particularly harmful to structural integrity, emphasizing the importance of waterproofing and other preventative measures.
Projections for 2024 indicate that there will be a continuing pattern of record-setting global heat, which will directly contribute to an increased risk of droughts due to the resulting dryness. These arid conditions provide a perfect catalyst for intense wildfires that have become commonplace in the West Coast Californian landscape. According to the National Interagency Fire Center, more than 43 thousand wildfires burned over 2.3 million acres nationwide last year. The lack of beneficial precipitation in these areas in 2023, compounded by the upcoming heat, sets the stage for this trend to continue throughout the year.
Nationwide inflation continues to affect the accuracy of insurance-to-value estimates across the board, with estimates placing valuations as off by 30 percent or more. With building materials and labor costs continuing to remain high, this presents a potential two-sided pressure on business owners stuck between higher premiums and underinsured properties.
Looking to the Future
Insurance companies are constantly faced with diverse weather challenges, which they address by employing advanced predictive analytics and dynamic pricing models, diversifying risk, proactively engaging with policyholders, and keeping abreast of regulatory changes. However, transitioning from El Niño to La Niña or neutral conditions by summer 2024 adds complexity, requiring insurers to adapt to unpredictable weather patterns quickly.
The commercial property market is expected to undergo a significant shift in outlook as the rise of artificial intelligence, big data analytics, and climate modeling will redefine risk assessment and policy customization. Additionally, the industry is increasingly focusing on sustainable practices in response to climate change, with a growing role for Insurtech and evolving customer expectations.
Nevertheless, the industry is well-equipped to navigate these challenges through technological innovation, adaptive strategies, and a focus on sustainability. This resilience and adaptability demonstrate that the future is bright despite the ever-changing world.
About Seneca Insurance Companies
Seneca Insurance Companies are known for having a broad appetite for writing property risks. We offer admitted and non-admitted ISO-based policies, with catastrophe perils based on location and risk characteristics.
