Commercial Real Estate Firms Facing More Challenging Insurance Market in 2012: Marsh
New York, January 30, 2012
Insurance market conditions for U.S. real estate firms will continue to deteriorate in 2012, continuing a trend that began in the second half of 2011, according to a comprehensive report published today by Marsh.
Record catastrophe losses in 2011 and continued weakness in the global economy drove real estate property insurance rates up, particularly for large organizations with catastrophe exposures, Marsh said in its report, Navigating the Risk and Insurance Landscape: U.S. Insurance Market Report 2012. Rates were also generally up for casualty insurance, including workers’ compensation, and slightly down for management liability and environmental insurance.
For Marsh’s U.S. real estate clients renewing their insurance programs in the fourth quarter of 2011:
- property insurance rates were up by as much as 15 percent for large, catastrophe-exposed organizations; generally up 5 percent to 10 percent for midsize, catastrophe-exposed organizations; and generally down 5 percent to up to 5 percent for organizations without catastrophe exposures;
- general liability rates were generally flat to up 5 percent;
- management liability rates were generally flat to down 5 percent; and
- environmental insurance rates for pollution legal liability and contractors pollution liability were generally flat to down 10 percent.
“Following several years of soft insurance market conditions and poor investment results, coupled with record catastrophe losses in 2011, property and casualty insurers began to apply pressure on rates at the end of 2011,” said Jeffrey Alpaugh, Marsh’s Global Real Estate Practice Leader. “Premium rates for residential risks, especially those with heavy concentrations of frame construction, and those with significant catastrophe exposures likely will continue to increase in 2012.
“For all real estate firms in 2012, the ability to distinguish their risk profiles from their peers will generate the best results when renewing commercial insurance policies. Providing complete, accurate, and quality data to underwriters is key.”
In addition to information on insurance market conditions, Marsh’s report identified trends that real estate risk managers should monitor:
- Capital markets remain challenging for real estate firms, as lenders and investors continue to scrutinize property type, location, and sponsorship. Continued uncertainty around the European sovereign debit crisis is adding to the pressure.
- High vacancy rates have taken their toll on real estate companies, but are now easing to varying degrees around the country. The strongest improvements have been seen in apartments, office, and industrial properties. Retail vacancy rates have also improved, but to a lesser degree.
- Declining asset values have led property owners and management companies to reduce operating expenses, including the postponement of building. Asset values could rise if job creation continues in metropolitan areas and vacancy rates continue to improve.
- Insurers remain concerned about widespread environmental claims, including contaminated drywall and mold/indoor air quality claims in the commercial and habitational segments, and chlorinated solvent claims in the retail and industrial segments.
Marsh’s annual U.S. Insurance Market Report, provides detailed information on commercial insurance market trends and conditions for all major classes of business and more than two dozen industry and specialty lines, as well as reports for other regions and for multinational insureds globally.