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Property Insurance Rates are on the Rise, What to Expect in 2023

by FCIS Team | This article was posted on 02 09, 2023 |

increasing prices charts

The year ahead presents unique challenges in the Property sector. Staying informed is the best way to prepare and protect our insureds from the high possibility of insurance rate increases.

Recent news headlines highlight the impact Global events have on the path of the coverage, specifically for property accounts that are prone to catastrophic events. Unlike traditional property insurance deductibles, a catastrophic event property deductible (CAT deductible) requires policyholders to pay a much larger out-of-pocket expense and only applies to specific hazards such as:
  • Wildfires
  • Storms
  • High winds
  • Floods
  • Earthquakes
Initially, it appeared that 2023 would see a slowdown in rate increases. However, several factors, such as catastrophic weather events, inflation, valuations, and reinsurance renewals have shifted this trajectory. This continues to make the property market a challenge for the time being.

As rates and inflation rise, it becomes increasingly important for policyholders to reassess their reported valuations and make necessary adjustments to accurately reflect the replacement cost. In other words, the cost of losses is constantly increasing, especially when there are catastrophic wildfires and water damage caused by storms. The era of unchanging reported building, rental, and business income valuations from year to year is over, and insurance companies now penalize accounts that do not proactively revise their reported valuations. Insurance companies estimate that insurance to value (ITV) is understated by 30% or more. The magnitude of the needed adjustments varies greatly across regions.

Wildfire Burning in the Hills

Visit the Fire Hazard Severity Zones (FHSZ) and assess your property’s fire risk.

A perfect storm of complications (no pun intended) has arisen in the marketplace due to the convergence of multiple factors, including industry-wide increases that are not limited to our clients. It’s crucial to factor in the unaccounted expenses from social inflation, enormous legal settlements (nuclear verdicts), disruptions in the supply chain, long-term effects from the COVID-19 pandemic, and the ongoing conflict between Russia and Ukraine, all of which are exacerbating the cost of losses.

Reinsurers are delaying their quotes with the expectation that prices will eventually increase as policies are not yet finalized. They now typically quote within 30 days of binding. Additionally, there is a trend of reducing line sizes as companies adjust their portfolios. The scarcity of retro capacity is keeping available capacity low, leading to higher prices and limited options.

The renewals in 2023 will remain difficult, with no hope of improved conditions for programs renewing in later spring. It is anticipated that prices will increase, accompanied by the reduced capacity.

The CAT property market for catastrophic events is challenging, and the outlook is not optimistic. It is important to collaborate with a knowledgeable team who understands the property insurance marketplace, including the specific type of business of the policyholder, to assess your needs and develop a customized coverage plan that best suits your business.

There’s a fine line between “unsure” and “insure.” Whether you have a question, want to start working with us, or just feel like having a good ol’ heart-to-heart about insurance (and who doesn’t?!) — we want to hear from you!