What is happening in the property insurance market?

Property insurers are turning their attention to the Atlantic hurricane season, which began unusually early with Hurricane Beryl and is expected to produce an above-average number of named storms.

Given these developments, it is crucial for key players in the property insurance market to stay abreast of the latest market changes, which were recently highlighted in Marsh’s latest Global Insurance Market Index. The index found that property insurance rates globally were flat, declining or moderating in all regions except IMEA.

The flattening of rate improvements is a key trend that Andy Camber and the team he leads as lead property underwriter at AmTrust International are watching. In the post-COVID property market, reinsurers are recovering while insurers are still trying to recover, particularly in business interruption. In the meantime, he said, other classes of business are driving the demand for rate improvements wherever insurers can get them.

Julian Strutt (pictured), Director of Property and Real Estate at Charles Taylor, also keeps an eye on the economic factors that influence the market. He emphasised the impact of rising claims costs and inflationary pressure on premiums.

The ongoing impact of changing regulations

Both Strutt and Camber highlighted the impact of changing regulation on the sector, with Camber pointing to increased regulation of consumer business through the introduction of the Excise Duty. Strutt added that regulation and governance continue to tighten. “We are seeing rigorous – and rightly so – reviews of the controls and processes we have in place to manage our delegated authority relationships with insurers,” he said. “I think that’s a positive thing.”

He added that with tighter regulation, firms need to ensure they have a “robust and effective” framework in place. For example, the FCA introduced its consumer duty in July 2023, which led to a review of the policies and procedures put in place by firms and how they demonstrated they were actively supporting vulnerable customers.

“As claims adjusters, we are required to report monthly on how we identify and manage vulnerable customers. Therefore, the regulation puts the spotlight on various companies across the insurance sector,” he said. “To date, we do not yet know whether the regulator will penalize those who violate the regulations and what penalties companies will face if they fail to comply.”

Fraud is another area that will be scrutinised as regulatory action changes. Strutt said he would support the introduction of minimum standards in regulation as this would likely lead to a more consistent approach to combating fraud across the market. Another key aspect increasing the pressure from regulatory standards was seen by Camber as Lloyd’s asserting itself as an additional regulator in its business areas.

“From what I can see, they always want something different to the PRA or the FCA, which is becoming quite a problem for a lot of syndicates,” he said. “We’ve certainly seen the opportunity to do business that syndicates have walked away from because it’s too expensive to keep doing it. They’d have to employ more people to comply with the regulations, and they’ve weighed up the options and decided that’s just not viable anymore.”

Sustainability concerns and talent pressure

Beyond the regulatory arena, the property insurance market faces a number of other pressing issues, including the growing focus on the critical role of sustainability and ESG in corporate thinking and operating strategies. Strutt said his team has observed the industry becoming increasingly resilient when it comes to building restoration. “That is certainly true for flood losses,” he said. “The willingness of different insurers to take this approach varies, but the direction for the market as a whole is clear.”

Another challenge facing the sector is talent loss, as firms compete for good employees while managing the loss of experienced and skilled professionals. Strutt noted that particularly in claims handling and claims settlement, more people are retiring early – often encouraged by the pandemic – and leaving the sector.

Camber is seeing increasing demand for co-insurance and collaboration elsewhere in the market. In the past, Camber said, when an insurer delegates authority, it would transfer 100% of its capacity to an MGA, which would then use that capacity to write insurance on its behalf. As that capacity begins to shrink, other insurers are now stepping in to prop it up. “For an MGA, you then effectively have two insurer relationships instead of one, which is positive because then you don’t have all your eggs in one basket,” he said. “So (these market conditions) have led to more co-insurance and collaboration in the insurance market, particularly for UK property.”

Supply chain disruptions

Another trend Strutt sees impacting the property insurance landscape is supply chain disruptions. He cited rising material and labor costs as a growing problem. Cost increases are slowing, he said, but inflation remains a factor and it is unlikely the market will suffer any losses due to this new normal.

The supply chain demands of the property and construction sector mean that it is a constant challenge to get new projects up and running and ensure that all the staff and materials are in place to complete the work without significant increases in budget. All of this in turn impacts on the premiums that policyholders pay, so it is vital that the industry seeks to manage the supply chain effectively to ensure that when a claim does occur, customers receive the service and response they need.

In Strutt’s view, successful implementation relies in large part on agile decision-making. Making the right decisions about liability and recovery approaches is important, he said, but making quick decisions is also critical. The longer a claim goes on, the more expensive it becomes, and that benefits no one. “Similarly,” he said, “tackling challenges quickly and transparently enables all parties involved to work toward the required solution. Agile decision-making helps the market deliver solutions to customers and do so quickly, effectively and innovatively.”