Top 6 Trends Affecting Commercial Property Insurance

The commercial property insurance industry is not immune to changes. As climate disasters, rising inflation, labor shortages, and other factors continue to change, businesses find themselves financially devastated and unable to rebuild what they once had. Commercial property insurance plays a critical role in protecting a business’s assets; having the right coverage can help replace or rebuild the damaged property and restore operations.

For businesses to safeguard their assets effectively, it is best to understand the changing landscape of commercial property insurance. By adapting to rising trends, organizations can better prepare for and mitigate potential risks, while also securing comprehensive coverage that aligns with their unique needs.

Here are the top 6 trends currently affecting commercial property insurance that businesses should be aware of when obtaining the right coverage.

#1 Catastrophic losses

The U.S. saw record numbers of weather and climate disasters in 2023. According to the National Oceanic and Atmospheric Administration, the total cost of the disasters exceeded $90 billion. These extreme weather events cause severe property damage and extreme associated losses for affected establishments.

Insurers are recalibrating risk models and underwriting practices to incorporate climate risk assessments, predictive analytics and catastrophe modeling to better understand and price these risks. The result is often higher insurance costs for property in high-risk regions. Some insurance carriers have even begun non-renewing such coverage.

#2 Inflation issues

Material costs and wage growth trends have softened since peaking in 2021. However, they continue to exceed pre-pandemic levels, affecting property repair and replacement expenses along with other claims. As a result, these trends lead to higher premiums and claim expenses.

Consequently, these challenges stem from fluctuating material demand, supply chain complications, surging prices for various building resources and rising labor costs across the construction sector.

#3 Reinsurance capacity and pricing challenges

The commercial property reinsurance segment has found it challenging to navigate the surge in extreme weather events, extensive underwriting losses and prolonged inflation issues. Consequently, many have begun to limit their capacity for these exposures or eliminate capacity, all while rates continue to surge. These rising reinsurance costs are being passed along to policyholders.

#4 Labor shortages

Many employers are increasing workers’ wages to help minimize widespread labor shortages that have been on the rise. Despite these efforts, the Associated General Contractors of America reported that 9 out of 10 contractors are continuing to struggle when looking for skilled workers. As a result, projects are being delayed and becoming increasingly more expensive, driving up the commercial property insurance costs associated with developments.

#5 Property replacement costs

As material and labor challenges persist, rising replacement expenses are following suit, contributing to elevated commercial property costs. The culmination of inflation issues, supply chain disruptions and labor shortages have made buildings, other structures and their contents far more expensive to replace following property losses.

#6 Underinsurance concerns

Due to heightened building costs and structural repair and replacement expenses, underinsurance has become a growing concern in the commercial property insurance market. By not considering inflation and other trends, businesses could find themselves with outdated property valuations and coverage limits. Consequently, this leaves them with inadequate protection and significant out-of-pocket expenses following various losses.

The commercial property insurance landscape is evolving rapidly in response to dynamic external factors such as catastrophic losses, inflation issues, reinsurance capacity challenges, labor shortages, rising property replacement costs and underinsurance concerns play significant roles. By staying informed and understanding the trends affecting commercial property insurance, businesses can maintain coverage that fits their needs.

For more information, check out our Property & Casualty Trends report. It provides a detailed look at what factors are impacting the cost of specific insurance coverages and how you can secure the best rates.