Trends in the U.S. Property Insurance Market

July 15, 2024

The property insurance market is undergoing significant changes in 2024; these changes are driven by a variety of dynamic factors. As the industry adapts to new challenges and opportunities, both insurers and policyholders are witnessing a transformation in how risks are assessed, managed, and insured.

In this article, we explore some of the factors that influence pricing and availability in the property insurance market. To learn more about customized insurance solutions for real estate businesses, including property management firms, commercial buildings, and multi-family developments, visit our Property page.

Key Factors Driving Trends in Property Insurance

While many factors influence insurance markets of all types, several stand out as having an outsized effect on the property market. These include:

• Climate Change: As the earth’s climate changes, an increase in both the frequency and severity of natural disasters has driven insurance costs skyward. Although the Atlantic hurricane season of the past two years has been mild compared to other seasons, other factors like rising water levels can contribute to expensive claims and subsequent cost increases.
• Regional Premiums: May also influence the property insurance market; properties in higher-risk areas are often required to meet advanced construction and safety standards to mitigate risk exposures due to natural disasters. This further drives up premiums for property owners.
• Inflation: It is no secret that inflation has contributed to rising costs across industries, and the insurance industry is no exception. Record-high levels of inflation in 2023 and 2024 mean that insurers have higher expenses, leading to premium increases. On a positive note, as inflation levels stabilize, many experts in the insurance industry predict that rates will, too.
• Litigation: Legal claims related to the property sector, including those backed by third-party litigation financing, have driven up claims expenses and premiums alike. In some cases, so-called “lawsuit abuse” has simultaneously increased claim expenses and decreased capacity of insurers. Without meaningful changes in tort reform, this trend will continue to plague the insurance market.
• Reinsurance Market Pressure: Insurers typically rely on reinsurance to manage their risk exposure, but the increased frequency of claims events (through natural disasters, lawsuits, and other factors) drives up reinsurance costs, impacting overall pricing strategies. As fewer reinsurance options are available, capacity is reduced, ultimately leading to higher premiums and more strict underwriting criteria.

Hope on the Horizon?

Although factors like climate change and inflation continue to wield influence over the commercial real estate insurance market, reports by leading insurance analysts suggest that market conditions are ripe for improvement. As discussed earlier, a weaker hurricane season in 2023 led to fewer claims, helping to stabilize casualty premium costs. Capacity within the industry has also improved as insurers with smaller portfolios and risk-sharing strategies becoming the norm. Other improvements include:

Better Risk Management and Mitigation

• Predictive Analytics: Advanced data analytics help insurers predict and manage risks more effectively, leading to more stable pricing and better risk mitigation strategies.
• Incentives for Safety Measures: Insurers are providing discounts and incentives for policyholders who implement safety and risk mitigation measures, such as installing fire suppression systems or reinforcing structures against natural disasters.

Market Innovations

• Usage-Based Insurance: More insurers are offering usage-based insurance policies, where premiums are determined by actual usage and behavior, providing fairer pricing.
• Microinsurance: The rise of microinsurance products makes property insurance more accessible and affordable for low-income households.

Increased Collaboration

• Public-Private Partnerships: Insurers are working with governments and other organizations to develop better disaster response strategies and improve overall resilience.
• Industry Collaboration: Sharing data and best practices within the industry leads to better risk management and innovation.

Improved Financial Stability

• Robust Reinsurance: Stronger reinsurance markets provide better financial stability for insurers, ensuring they can cover large-scale losses and maintain market confidence.
• Capital Investments: Increased capital investments in the insurance sector support growth and innovation, leading to better products and services.

These improvements are collectively enhancing the efficiency, resilience, and customer satisfaction within the property insurance market in 2024. ◼