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How to Approach Property Renewals as Market Remains Challenging

While improved marketing conditions are beginning to emerge with new capacity entering the market and rate increases decelerating[1], navigating the property risk market remains challenging thanks to COVID-19, natural catastrophe losses and continued firm pricing.

Industries such as energy, real estate, hospitality, healthcare, manufacturing, retail, higher education and public entities have been most affected, but the rising number of climate-related events means that almost any property-owning organization could be at risk. And COVID-19 continues to create additional market strains: Loss control efforts are more difficult, adjusting claims takes longer, contract scrutiny is increasing, and litigation defense costs are climbing.


Aon defines a catastrophe as a natural event that causes at least one of the following:


$25 million or more in insured property losses

10 deaths

50 people injured

2,000 filed claims for homes and structures damaged


All of these factors continue to create a very challenging environment for risk managers as they continue to navigate new and current forms of volatility. Although some optimism is beginning to emerge, risk managers still face a rugged property renewal. 

Here’s what they can do to bring a sense of stability into their property risk program.


Continue to Bring Flexibility into Renewal Decisions

With pricing remaining firm, your rates will be similar to the previous few years but retentions may be higher, and underwriters will be more rigorous in seeking detailed underwriting information. Pricing remains up, although increases are decelerating. While there’s no single solution for bringing costs down, risk managers should consider a variety of options for covering risk, such as:

  • Retaining more of the risk by reducing limits, increasing retentions or reconsidering scope of coverage.
  • Using captive insurance, which can formalize self-insured retentions and offer coverage flexibility.
  • Deploying parametric or other alternative risk transfer (ART) products that offer alternative triggers based on an indexed risk or indemnity across a wide range of risks.

Not all companies have the financial resilience to take on a large retention. And some industries are undergoing a longer period of duress than others. If you retain more risk and experience a loss, you likely will have to take the hit financially. Use the sophisticated analytics tools available from your broker to evaluate your internal risk tolerance and figure out how you can adjust your program.


Remember: This year is about seeking the most value overall, even though costs may be higher than you're comfortable with.


Communicate with Stakeholders Early and Often

Leaders are experiencing anxiety and frustration around the hardening market, especially if they’d been loss-free to this point. It’s the job of the risk manager to help stakeholders understand the market dynamics. 

Many chief financial officers have been more engaged in renewal conversations in the past two years than they historically have been because property insurance has more impact on the budget than in previous years. Given the changing risk landscape, it’s likely other members of the C-suite will pay closer attention as well. Start the conversation early, educate the C-suite on the context of the market if it’s not already informed, and update members as you receive new information from your broker and underwriter. When you touch base often, you create an opportunity to share positive surprises among all the bad news.

And keep in mind that building and facilities managers are also your stakeholders. Make sure they know what to expect so they can help you mitigate risk on the ground.


Expect Delays in Decision-Making

When claims get to a certain cost level for insurers, the process starts to slow down, and decision-making authority gets consolidated among fewer people. In addition, the decision makers are hesitant to move forward without advice from their legal counsel and other experts. This creates a bottleneck in addressing claims and lots of frustration for clients.

Claims generally are getting more complicated as well as more frequent, and many areas of a claim that used to be negotiable no longer are. When you layer on the potential litigation and significant defense costs related to ongoing COVID-19 claims, companies should be prepared for everything to take longer.


4 Things You Should Know About COVID-19 Claims and Litigation


Some insurers are paying certain claims under coverage extensions for communicable disease, depending on the trigger for the disease extension.

U.S. property insurers are rejecting "physical loss" COVID-19 claims because insurers believe that COVID-19 and shutdown orders do not constitute "physical loss."

Virus exclusions increase the statistical likelihood that a trial judge will grant a motion to dismiss a COVID-19 coverage suit.

Insurers may raise defenses beyond lack of physical loss and virus exclusion, such as contamination or pollution exclusion, loss of use, and loss of market exclusion, casualty and suit limitations deadlines.


Increased turnover at insurance companies, especially in the claims department, is another recent factor putting distance between buyers and the result they want. Relationships that companies have relied on for many years may be gone, even at a very senior level. But even if your relationship with your underwriter is intact, it may not bring the advantages it once did because of diminished decision-making power.


Look at Your Retained Risk Holistically

Property isn’t the only line of business to consider when making renewal decisions. Companies should reassess their ongoing corporate risk philosophy because of the ongoing hard market. Risk professionals will have to build consensus across the organization for how much risk it is willing to take. The CFOs and other senior leaders will have to reconcile the risk appetites they each have for their various business units and the enterprise overall.

Risk managers should add up all the different risks they’re retaining across the board and understand what that means to the organization. When risk managers present their renewal strategy to stakeholders, bring more than one option and point out successes among the challenges.

As new capital for existing reinsurance vehicles and new entities continues to enter the market, rates will continue to moderate. Unfortunately, capacity remains tight, but the opportunity is still there for new products that might bring buyers some relief.

Finally, remember that the insurance market is cyclical, and competitive pricing will return. In the meantime, start early and focus on being as informed as you can so you can make decisions between retained and transferred risk.

[1] Aon Global Market Overview