A Look at the Factors Impacting Commercial Property Insurance

The data over the years has revealed how property rates have rapidly changed curves over time. According to CEIC data, US house prices saw year-on-year growth of 8.8% in 2022, with an average growth rate of 5.4% from 1992 to 2022.

When property rates rise, so do the premiums to insure these properties. According to the Insurance Information Institute, some states are seeing a significant increase in property premiums. For example, the average annual premium in Florida is more than $4,200, nearly three times the national average.

Let us take a look at the various factors that contribute to these fluctuating premium amounts.

Economic Changes and Inflation

The world is struggling with shifting economic dynamics and inflation. According to Statista, inflation was around 4.9 percent between April 2022 and 2023. The cost of manual labor, construction materials, and rising property rates all contribute to rising property insurance prices.

Let us not forget the obvious changes in supply chain dynamics that occurred as a result of the Russia-Ukraine conflict. A report by the University of Florida highlights that the war has had an impact on important industries such as transportation, automobiles, and so on.

Result? An upswing in material costs, indirectly impacting the real estate. So, will the country face inflation every other quarter and be subjected to an increment in premiums? It is difficult to say whether a pattern has been discovered, but one thing is certain that economic disruptions influence the commercial property insurance space.

Abrupt Climate Changes

When it comes to abrupt climate changes, some American states have been hit hard in recent years. Hurricane Ian, Hurricane Fiona, Hurricane Nicole, Ferndale Earthquake, American Winter Storm, and many more occurred in 2022 alone. Each of these disasters caused billions of dollars in damage, forcing insurance companies to pay out large sums to rebuild destroyed structures.

According to a report, Hurricane Ian was the most disastrous event that America had to deal with, with insured losses totaling more than $60 billion. If natural disasters strike so frequently, insurance companies will find it challenging to repay property owners and will have to raise insurance premiums and introduce deductibles. Although the world is working together to make the proposed Paris Agreement work by being more sustainable and environmentally friendly, there is still a long way to go to restore the natural balance.

Underwriting Losses

Given the preceding two factors, it is clear that nothing can be said with certainty when it comes to protecting buildings and understanding premium rates. When the risk assessment and claimed money do not match, these types of overpaid claims are classified as underwriting losses.

According to the aforementioned report, insurance claims reached $125 billion in 2022, exceeding the average amount of $100 billion. The report also affirms that 2023 will see the same inflation patterns, possibly due to other factors or an increased need for insurance. However, to keep underwriting losses in check, premiums for commercial properties will undoubtedly rise.

Changing Workplace Dynamics

This is an intriguing point to consider and reflect on. The pandemic forced the worldwide corporate community to accept and embrace the joy and convenience of working from home. According to a McKinsey report, 87% of respondents would gladly take the opportunity of having flexible working opportunities.

Renting a property in commercial areas such as Manhattan and New York has had been undeniably expensive. But post-pandemic, the dynamics have changed. As per Forbes, the prediction is clear: for the next ten years, the price of offices will remain 39% lower than in 2019.

However, there is a catch — as people migrate to less expensive areas, supply-demand and premium dynamics are disrupted. In contrast to what was happening in specific cities previously, more and more sparsely populated areas are now receiving people. As a result, premiums and property rates are rising evenly across the country. Because the concept of working from home has become a necessity in recent years, we anticipate that the dynamics of commercial property insurance will be highly volatile.

Wrapping Up

There is a lot going on in the US market, but property owners still need to protect and insure their properties as best as they can. If there was a higher need for better assessment, it is now. At Gonzalez Insurance, we understand changing dynamics and keep a close eye on the market. We provide thorough risk assessments that benefit the property owner. Contact us today to receive a customized quote for commercial building insurance.