When to Consider an Umbrella Insurance Policy
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The commercial real estate insurance industry is expected to undergo rate hikes in 2020, in part due to a rise in catastrophic events such as floods and fires spurred on by climate change.
Property insurance prices for the fourth quarter 2019 and early 2020 were projected to rise between 10 percent and 20 percent for non-CAT (catastrophic event) insurance accounts and 30 percent to 60 percent on accounts with CAT potential and poor loss history, according to a report by New York-based insurance brokerage and consulting firm USI Insurance Services.
Rates by year-end 2019 were already on an upward slope. Commercial property and casualty (P&C) rates rose by 5.25 percent in the fourth quarter of 2019, according to Dallas-based online insurance exchange MarketScout Corp. Business interruption insurance -- often secured by businesses looking to recover loss of income due to a covered unforeseen event, such as a fire -- also rose 5 percent in the quarter.
Additionally, commercial insurance prices overall jumped 11 percent globally in the same period, according to a report by Marsh’s Global Insurance Market Index, an insurance brokerage and risk adviser.
Offering affordable flood insurance for homeowners in flood zones has been difficult due to climate change causing increased risk. For the past four years, the United States withstood active Atlantic hurricane seasons. Flood insurance is not typically covered under homeowners’ or commercial property insurance. Policies previously were mainly provided by the National Flood Insurance Program, but private insurance companies in the U.S. in recent years bolstered their presence in the market. Direct flood insurance premiums by private insurers rose 70 percent between 2016 and 2018, to $644 million, according to a report by research and consulting firm Deloitte.
Even with insurers increased presence in the sector, the Federal Emergency Management Agency (FEMA) estimates that only about 3 percent of U.S. homeowners are covered. More insurers may enter the field, looking to attract the millions of people still lacking flood insurance. Insurers aiming to offer flood insurance should look to meet new federal standards that allow lenders to accept qualified private insurance policies for properties in specified flood hazard areas, Deloitte reported. To do this, insurers will have to have a better system to assess individual risks.
P&C insurers are expected to lift their premium volume by raising rates. This is being done after insurance companies faced growing liability and catastrophe losses. In 2018, the U.S. P&C insurance sector saw net income hit $60 billion, following a 10.8 percent boost in net premiums written and nearly breaking even on underwriting, according to Deloitte. The first half of 2019 was strong as well. Nonlife insurance premiums are projected to grow by about 3 percent in 2020.
A lack of interest in the insurance industry among Millenials combined with retiring baby boomers is expected to leave the industry with 400,000 job openings by year-end 2020, Deloitte research indicates. To keep knowledgeable workers in the industry, baby boomers might be trained on some newer technology being used by insurance companies and offered part-time hours. But insurers also are being encouraged to recruit younger workers by touting the increased use of technology, such as artificial intelligence, being used in the industry and the need for workers with updated skills.
Insurance is a data-heavy industry. Many insurers have taken advantage of new technologies to store data in the cloud. But cloud-service providers also can include features such as core system applications and advanced analytics. Insurers should start planning to migrate more of their business into the cloud to gain additional options toward using advanced technologies, including machine learning and AI, reports Deloitte.
The insurance industry likely will be impacted by claims stemming from business losses due to the coronavirus pandemic. The pandemic is affecting the global economy with many event cancellations and travel restrictions. Much of the impact in the insurance industry will hit trade credit insurers. Trade credit insurance is a type of P&C insurance. It covers the risk that a seller’s customers cannot pay for goods or services bought on credit. Trade credit insurance specialist Atradius last month said it expected corporate insolvencies to grow to 2.4 percent in 2020, up from 1.4 percent in 2019. This is largely due to the coronavirus outbreak, the company reported.
Other types of insurance that may be impacted by coronavirus or other infectious disease-related losses include business interruption insurance. Many businesses had to comply with government-ordered closures amid the outbreak, causing loss of income. Policies typically cover business interruption due to physical loss or damage to property and exclude pandemics. U.S. lawmakers are pressuring insurers to cover claims from businesses that closed due to the pandemic.
Liability insurers also may see more claims from businesses whose infected customers allege they were negligent in protecting against the virus. Coverage for coronavirus-related claims will vary by policy.