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How to Approach Property Insurance Renewals in a Tough Market

Following a year of significant catastrophe losses and continued COVID-19 impacts, it will be imperative for risk managers to put themselves in the best possible position by preparing for challenging property insurance renewals. Here’s what to expect in 2021, and our tips for getting your company ready during a hardening market.

The last year was major for catastrophe losses in North America, even aside from the COVID-19 crisis. Property damage and the associated insurance claims kept coming as a result of events such as Winter Storm Uri, the Calgary hailstorm, major wildfires across the Western U.S. and protests in multiple states.


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; or 2,000 filed claims for homes and structures damaged.[1]


Natural catastrophe losses fell in 2018 and 2019, but rose to $74.4 billion in 2020, up 88 percent from $39.6 billion in 2019.[2] Property damage at this level and frequency is a relatively new concern for risk managers and insurers alike. As a result, the property insurance market has been hardening for several years.

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 events means that almost any property-owning organization could be at risk. And COVID-19 has created additional strains: Loss control efforts are more difficult, adjusting claims takes longer, contract scrutiny is increasing, and litigation defense costs are climbing. All of these factors have created a very challenging environment for risk managers as they approach renewals.

Here’s what to expect in 2021, and our tips for getting your company prepared.


Forget Everything You’ve Learned from Prior Cycles

Risk managers won’t be able to meaningfully compare this year with renewals in recent memory, so try to approach the challenge with fresh eyes and flexibility. You’ll likely have to pay the same costs as previous years, or more, but with a much higher retention. Insurance costs are generally going up every quarter, and many companies are already financially challenged due to the pandemic. 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 buy less insurance from the market and experience a loss, you likely will have to take the hit financially. Use the sophisticated analytics tools available 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.


While it can be extremely frustrating to be affected by the hardening market to this degree, especially if you haven’t been involved in catastrophe events so far, keep in mind that insurance companies aren’t making a profit in the property sector right now because claims and expenses continue to exceed premiums. Until insurance company profitability returns, current market trends will continue.


Communicate with Stakeholders Early and Often

Leaders are experiencing a lot of 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 what’s going on.

Many chief financial officers are more engaged in the renewal conversation in 2021 than they historically have been because property insurance accounts for a higher number in the budget than in previous years. Given the changing risk landscape, it’s likely other members of the C-suite will pay closer attention this year as well. Start the conversation early, educate the C-suite on the context of the market if it’s not already informed and update it 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 a Delay 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 COVID-19 claims, companies should be prepared for everything to take longer.

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

  1. Some insurers are paying certain claims under coverage extensions for communicable disease, depending on the trigger for the disease extension.
  2. 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.”
  3. Virus exclusions increase the statistical likelihood that a trial judge will grant a motion to dismiss a COVID-19 coverage suit.
  4. 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.


High 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 decisions about this renewal. Companies should reassess their ongoing corporate risk philosophy because the hard market likely isn’t going away soon. 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.

Some good news: New capital for existing reinsurance vehicles and new entities is being introduced to the market in 2021. Unfortunately, the new markets aren’t making rates more competitive at this point. But the opportunity is still there for new products that might bring buyers some relief.

Finally, remember that the insurance market is cyclical, and it will soften eventually. 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] “Facts + Statistics: U.S. Catastrophes,” Insurance Information Institute

[2] “Facts + Statistics: U.S. Catastrophes,” Insurance Information Institute