First paragraph, second sentence of the Commercial Property Insurance Trends for 2025 and Beyond section should read: However, according to the latest market report from AON, for the first time since 2017 (27 consecutive quarters), commercial property insurance rates broke their upward trend – going from +3.4% in Q1 2024 to -0.94% in Q2 2024 (instead of However, according to the latest market report from AON, for the first time since 2017 (27 consecutive quarters), commercial property insurance rates broke their upward trend – going from +34% in Q1 2024 to -0.94% in Q2 2024.).

The updated release reads:

COMMERCIAL PROPERTY INSURANCE SHOWS SIGNS OF IMPROVEMENT, STABLE GROWTH, SAYS NEW TRIPLE-I BRIEF

Despite challenges posed by external factors, such as climate risk and inflation, the U.S. commercial property insurance segment shows signs of turning a corner in terms of rates and remaining on track for stable growth, according to the Insurance Information Institute (Triple-I), an affiliate of The Institutes.

In its latest Issues Brief, Commercial Property: Trends and Insights, Triple-I noted that double-digit rate increases, particularly for properties in high-risk regions or with poor loss histories, were common in recent years and may continue for high-risk exposures. Strong underwriting performance and improved investment returns, which can bolster operating profitability, may play a crucial role in the medium to longer term.

Commercial lines in aggregate benefited from underwriting margins that outperformed the long-term average despite slowing year-over-year growth in direct premiums written, according to the 2024 S&P Global Market Intelligence U.S. Property and Casualty Industry Performance Rankings report.

Commercial Property Insurance Trends for 2025 and Beyond

While factors other than rates reduced overall premium growth in 2023, U.S. growth in commercial property/casualty insurance lines has been driven almost entirely by higher premiums. However, according to the latest market report from AON, for the first time since 2017 (27 consecutive quarters), commercial property insurance rates broke their upward trend – going from +3.4% in Q1 2024 to -0.94% in Q2 2024.

“Increasing climate and catastrophe risk, particularly secondary perils, drive losses,” said Dale Porfilio, FCAS, MAAA, chief insurance officer, Triple-I. “Catastrophe losses in the first half of 2024 were on track to be lower than in recent years while remaining above the 21st-century average.”

The late-surging 2024 Atlantic hurricane season pushed insured losses from tropical cyclones in the U.S. this year to an estimated $51 billion, according to a recent report from Munich Re. Two record-breaking hurricanes comprised 80% of this amount: Milton (approximately $25 billion) and Helene (roughly $16 billion). However, estimated total insured losses for 2024 slightly decreased compared to losses incurred during the previous three hurricane seasons.

Reinsurance appetite has kept up with capacity demands, but threats lurk. The medium- to long-term outlook for commercial property may hinge on whether the reinsurance market becomes more competitive in 2025, given the high frequency of catastrophe events and losses in the second half of 2024.

Undervaluation Poses Challenges to Adequate Coverage and Risk Mitigation

Commercial property's value can be dynamic and underestimated, yet replacement costs for many properties get revalued only every three to five years. A study of property appraisals by Kroll showed that an estimated 90% of buildings studied were underinsured, with 68% of the buildings valued from 2020 to 2021 underinsured by 25% or more. Also, rents are significantly down for commercial buildings, and more than $1 trillion in commercial real estate-based loans will mature in 2025. Investors will likely seek to recapitalize loans to reflect lower values in the coming year. Inaccuracies in valuation can throw off the modeling of expected losses for insurers and commercial policyholders.

“This vulnerability could ignite a shift in property insurance dynamics when the market sees an increase in claims not adequately covered by existing policies and introduce more volatility in the commercial property market,” said Porfilio. “Transformations in underwriting practices and policy structures can mitigate economic volatility. As businesses demand more comprehensive coverage options to address the increasing complexity and frequency of commercial risks, insurers may need to harness innovation,” he added. “Future outcomes will ultimately hinge upon relationships between insurer and policyholders.”

About Insurance Information Institute (Triple-I)

With more than 50 insurance company members — including regional, super-regional, national and global carriers — the Insurance Information Institute (Triple-I) is the #1 online source for insurance information in the U.S. The organization’s website, blog and social media channels offer a wealth of data-driven research studies, white papers, videos, articles, infographics and other resources solely dedicated to explaining insurance and enhancing knowledge.

Unlike other sources, Triple-I’s sole focus is creating and disseminating information to empower consumers. It neither lobbies nor sells insurance. Triple-I offers objective, fact-based information about insurance – information that is rooted in economic and actuarial soundness. Triple-I is affiliated with The Institutes.

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“Increasing #climate and #catastrophe #risk, particularly secondary perils, drive commercial property #insurance losses.” - Dale Porfilio, Chief Insurance Officer @iiiorg