Hurricane Ian, which hit Florida on September 28, became one of the most destructive storms in US history. High winds, storm surges and massive flooding have already caused billions in residential and commercial property damage. With rising interest rates and shortages of labor and materials, recovery from devastation is likely to be both slow and costly.
The cost of wind damage to residential and commercial properties is estimated at $22 billion to $32 billion, while storm surges destroyed an additional $6 billion to $15 billion in real estate assets, according to a report by CoreLogic. Damage of this magnitude may push more insurance companies into insolvency, as many have already done. ABCNews reported that since January 2020, at least a dozen Florida insurance companies have gone out of business, and 30 more are experiencing instability. The state’s insurance landscape was already in crisis before Hurricane Ian, as premiums were significantly higher than the national average.
Ian’s effect on rising CRE premiums in Florida
Commercial insurance rates have already increased due to inflation, rising construction costs and supply chain issues. Catastrophic losses often deplete the reserves of insurance companies, making commercial insurance more reactionary than other types of insurance. According to Mark Hubbard, Managing Director of Gallagher USA Property and Gallagher London Property.
“With this catastrophic impact of losses on insurance and reinsurance companies, companies will be more assertive in their demands for increases and pressure on the scale of their prior thinking,” Hubbard said. commercial real estate director. “Clients impacted by losses resulting from ‘Ian’ will see greater impact and pricing will be more dependent on the quantum impacting multiple layers, premium to loss ratios plus the cost and availability of treaty reinsurance on January 1 2023.”
“Ian will impact almost all property insurers as this catastrophic loss affects both insurers and reinsurers. The impact of inflation on replacement costs will play a large role in the magnitude of this loss and we could start to see carriers reduce the capacity provided,” said Martha Bane, executive vice president and general manager of Property Practice at Gallagher. CPE.
Different types of properties will feel the impact of replacement and development costs in different ways. Florida property types of different categories will also see different insurance increases. Several Gallagher experts have said hospitality, personal lines and multi-family communities will likely be the hardest hit.
Janet Ruiz, Director of Strategic Communications at Insurance Information Institute, explained how potential insurance increases will depend on the physical structures of businesses as well as their content. “Retail and restaurants are probably the most vulnerable, but perhaps not the most expensive. A company that has manufacturing equipment could cost a lot more to replace. I think it will vary by industry. Many businesses, especially in Florida, are planning for disaster, and the more expensive it would be to replace their equipment, the more seriously they are already taking it,” Ruiz said.
Nationwide insurance premiums may be affected by the aftermath of Hurricane Ian, depending on location, type of business and asset performance. Exposed Tier 1 properties across the United States are expected to see their insurance rates increase. However, the general direction of the market may not change too much.
“Inflation issues are everywhere, so customers should expect premiums to rise due to their rising replacement value,” Hubbard said.
“Treaty Cat reinsurance is typically written for all catastrophic risks. Assuming this does not change on January 1, anticipate that there will be a nationwide impact in highly designated disaster areas. Areas outside of these should not be affected in the same way. However, the rating of individual risks by each insurance company is very subjective. »
James Rozzi, regional executive vice president of the real estate practice at Risk Placement Services in Gallagher’s wholesale division, noted that the threshold for an event to move markets always appears to be measured at $100 billion in insured losses, as seen with hurricanes Harvey, Irma and Maria. While Ian is a massive catastrophic event and will increase rates in Florida, it may not be nationwide.
Mitigate the impact
Florida was already facing challenges in terms of securing capacity, high construction costs and supply chain issues. Hurricane Ian has the potential to exacerbate these market problems while making insurance difficult to find and maintain.
James Stuart, Director of Sales and Practice Leader for HUB International The North American real estate specialist, along with Amy Michelle Windhauser, Executive Vice President, Head of Real Estate Practices – Central Region at HUB International, explain their views on the effects of additional insurance premiums: ” At first, it will be difficult to find insurance capacity as 12% of property and casualty reinsurance capacity was lost before Hurricane Ian and Monte Carlo Ren-de-Vous, the reinsurance and insurance sectors coming together to discuss and debate critical industry issues Policyholders with named wind and flood insurance already in force will find that in Florida they will not be renewed or will see a significant increase in premium with restricted terms and conditions. Alternative program structures may need to be explored by clients, such as parametric, structured and bifurcated (exposure splitting) risk.
Despite concerns about the challenges Florida faces in the aftermath of Hurricane Ian and a tough market, there are ways homeowners can mitigate premium increases. Although this can be a difficult feat, there are strategies advised by Stuart and Windhauser. “Insureds typically need to show underwriters why their assets are best-in-class with evidence such as hurricane and water mitigation programs and checklists. Well-written business continuity plans will help demonstrate proactive risk management in the insurance marketplace. Policyholders should do everything possible to mitigate their current open losses. Any loss history submitted with the underwriting submission must include a narrative describing the loss, the mitigation strategies used to contain the amounts of the losses, and any remedial action taken after the loss.
Similarly, Rozzi said CPE: “Provide subscribers with as much information as possible about your assets and the measures taken to protect them. Higher deductibles and self-insured retention may be a consideration.
Alexandra Glickman, senior managing director and practice leader for Gallagher’s real estate practice, said insurers will no longer turn a blind eye to incomplete underwriting or underreported values.
“Understanding the risks that relate to their assets, ie flood levels, age of roofs, general asset conditions is the first step in controlling premiums. Insurers may seek increased minimum deductibles for larger Tier 1 exposed portfolios, and they will certainly focus more positively on the best-protected assets,” Glickman said as advice to homeowners.