The Challenges of the Commercial Property Insurance Market

The commercial property insurance market has witnessed a surge in premiums over the past few years. While the challenges persist, there are signs of a softening trend. According to Marsh, commercial property insurance experienced a 4% increase in the second quarter of the previous year, a noticeable decrease from the 7% hike in the preceding quarter. These trends suggest that rates may continue to stabilise throughout 2024.

Yet, the economic climate remains uncertain, introducing complexities to our predictions. The Bank of England’s report highlights a 50-50 chance of a recession this year, potentially impacting insurer investments and creating ripple effects for policyholders. Several factors contribute to the ongoing challenges, which could lead to rising premiums and more restrictive coverage, particularly for properties situated in areas prone to natural disasters.

Here are some key factors shaping the landscape of commercial property insurance in the upcoming year:

Inflation- The commercial property insurance segment grapples with the repercussions of inflation causing increased claims expenses. Despite some easing in material cost inflation, a projected 3% rise in build costs during 2024, as reported by the Building Cost Information Service, may persist. Policyholders must review insurance-to-value calculations to avoid being underinsured, especially with prices remaining significantly higher than pre-COVID-19 levels, affecting property repair and replacement expenses related claims.

Extreme Weather Events- Severe weather continues to cause substantial property damage. Insurers anticipate pay-outs of an estimated £560 million for damages caused by recent storms and, with the frequency and severity of natural catastrophes on the rise, we believe premiums may do the same.

Labour Concerns- The Construction Industry Training Board predicts a demand for over 200,000 additional workers in the UK construction industry by 2027. Labour shortages could result in projects becoming more expensive and taking longer to complete, which could increase associated claims costs. However, the integration of technologies like AI and 3D printing may offset some labour-related challenges.

To navigate commercial property insurance in 2024, consider the following strategies:

  • Address building issues promptly to prevent potential losses and subsequent claims. Provide comprehensive loss control documentation to your insurer.
  • Determine if your commercial property is in an area prone to specific types of natural disasters, such as flooding. Implement adequate mitigation and response measures.
  • Proactively develop or review your business continuity plan for extreme weather events to ensure your organization remains operational and minimises damages in the event of an interruption.
  • Regularly assess the ITV of your property and its accuracy, adjusting policy limits accordingly to avoid the risks of underinsurance.
  • Engage with insurance professionals in advance of your renewal date to ensure your application receives a thorough evaluation by underwriters. Early collaboration facilitates a more comprehensive understanding of your insurance needs.

As the commercial property insurance landscape continues to evolve,will be instrumental in securing optimal coverage and managing potential risks effectively.