Commercial Property Insurance Rates: A Persistent Rise
Despite earlier predictions, commercial property insurance rates have continued to climb in 2024, though the increase has started to decelerate. Data from WTW’s Commercial Lines Insurance Pricing Survey shows a 5.9% rate increase in Q2, down slightly from the 6.3% rise in Q1. Yet, even as the rate of increase slows, premiums remain on an upward trajectory. In fact, the Baker Hopp 2024 Commercial Insurance Market Outlook reports that the average increase in commercial property premiums was 10.1% in Q1, with expectations for ongoing rises of 5% to 15% through the second half of the year.
For brokers, this means preparing clients for potentially higher premiums while helping them find policies that balance cost and coverage. The uptick in rates underscores the importance of strategic planning and communication with clients about these continued cost escalations.
Key Drivers Impacting Insurance Rates
Several factors contribute to these rising rates, which brokers should carefully monitor to help clients make informed decisions:
- Natural Disasters: Frequent and severe weather events are pushing up claims costs. NOAA projects that extreme temperatures will continue to fuel storm activity in 2024, further impacting premiums.
- Inflation: While moderating, inflation continues to raise the costs of claims and replacement values, affecting policy pricing.
- Reinsurance Costs: Increased reinsurance rates are being passed along to policyholders, directly impacting commercial property insurance premiums.
- Underwriting Standards: Insurers are implementing stricter underwriting criteria, especially for properties in high-risk areas, affecting both availability and cost of coverage.
Brokers who are proactive in tracking these trends can better advocate for their clients by negotiating policies that address specific risks while managing premium costs.
Trends in Commercial Real Estate Prices
The commercial real estate market has shown signs of stabilization, but the outlook varies significantly across property types and locations. Industrial and multifamily properties remain in high demand, while the office sector continues to struggle with shifts toward remote work. As interest rates have steadied, property values have also stabilized, providing a more predictable environment for transactions and financing.
This trend benefits brokers by creating a clearer picture of property values and associated risk profiles. For clients invested in high-performing property types, brokers can leverage stable valuations to secure more favorable terms. Conversely, clients with struggling property types may benefit from brokers who understand the nuances of adaptive reuse and can help them manage risk in changing markets.
Emerging Factors for Brokers to Watch
A few key developments are shaping the landscape and providing brokers with new avenues to support clients effectively:
- Parametric Insurance: With natural disasters on the rise, parametric coverage—based on measurable event criteria rather than traditional claims processes—is gaining popularity. Brokers should assess when parametric policies might offer faster, more flexible solutions for clients in high-risk areas.
- ESG Considerations: Environmental, social, and governance factors increasingly influence underwriting and real estate investment. Properties with strong ESG profiles may enjoy lower premiums and higher valuations. Brokers can assist clients in understanding how ESG factors could improve their risk profile.
- Technological Advancements: Advances in risk assessment and property management technology are paving the way for more accurate pricing and risk evaluation. Brokers can help clients explore tech-based tools for risk mitigation, which may reduce premiums over time.
Looking Ahead to 2025
Brokers should prepare for ongoing changes, as 2025 is expected to bring further shifts influenced by economic, regulatory, and technological factors:
- Economic Conditions: The health of the economy, including inflation and GDP trends, will affect both property values and insurance premiums.
- Climate Change: The impact of more frequent and intense natural disasters will likely drive adjustments in coverage availability and cost, especially for high-risk properties.
- Regulatory Developments: Shifts in regulations around climate risk disclosure and ESG reporting could impact both real estate investments and insurance policies.
- Technology Innovations: New tools for property resilience, construction, and risk assessment may help mitigate risks and reduce premiums for proactive clients.
Why It Matters for Insurance Brokers
For brokers, staying informed about these dynamics is essential to effectively serve clients, especially as the commercial property market and insurance landscape evolve. Higher premiums, stricter underwriting standards, and emerging technologies require brokers to adopt a more consultative, informed approach. By staying current on market conditions, brokers can help clients navigate the complexities of commercial property insurance, manage rising costs, and implement proactive risk management strategies.
With 2025 on the horizon, brokers who remain adaptable, informed, and forward-thinking will be best positioned to support their clients in an ever-changing market, providing the expertise and advocacy necessary to navigate this evolving landscape successfully.
