Soaring rates, growing underwriting losses, and a tough renewal period coupled with reduced capacity made 2023 one of the most challenging years for the commercial building insurance market. 2024 brought with it more hope. 2023 was the year of triple-digit rates, these have now subsided as renewals see single-digit increases. Insurance is far more affordable than last year. A key trend for businesses to watch is the emergence of new predictive models which help in predicting natural disasters such as wildfires and hurricanes which could affect insurance coverage and rates. Besides this, businesses must also be wary of changes and adoption in smart technology, cybersecurity, and sustainability. Here’s a look at some key trends in commercial building insurance.
Impact of Climate Change
According to Deloitte, insurance costs may double by 2030 in some states, due to the changing weather. One of the hardest-hitting factors to the insurance market is the rise in severity as well as the frequency of natural disasters. In 2023, insured losses from these events soared to $108 billion, making it the 4th consecutive year with losses exceeding $100 billion. Adding to this, claims related to natural disasters have seen a 40% jump in the past 5 years. Unfortunately, weather events have become so unpredictable and destructive that insurers have had to adapt by addressing their coverage to account for these risks. Considering the rate and frequency of these unforeseen events, it’s paramount for businesses to choose insurance partners who understand what it takes to address these challenges and guide clients appropriately.
How smart technology is shaping risk management
IoT has revolutionized many industries, and commercial buildings are a great example of how risk management can be cleverly managed with technology. Integrated IoT devices offer real-time monitoring and predictive analysis which transforms building safety and drives operational efficiency. From sensors to smart meters, IoT devices are constantly fetching data on factors like temperature and humidity and are used to predict and prevent potential problems that are nipped in the bud. A classic example would be water leaks; there are plenty of smart sensors that can detect such leaks early, giving responders time to control the damage and reduce insurance claims. Real-time monitoring offers the benefit of quick response to accidents, for example, a smart smoke detector can “sense” fire early and alert the authorities. Proactive action can prevent the spread of a fire or contain it. This minimizes damage and ensures safety by giving people precious time to act. Adopting IoT technology can have a huge impact on reducing risks, so choosing an insurance partner that acknowledges the role of technology solutions like IoT in modern risk management is important to enhance the safety of your commercial property.
How sustainability is shaping the future
While sustainability is the need of the hour for the world, it is also a financially smart move for businesses to ensure that buildings earn green certifications such as LEED or Energy Star. Such buildings could also qualify for premium reductions going up to 30%. It’s important to have these certifications as they recognize the impact of energy-efficient systems that cut down waste. Sustainability also helps in cutting costs by lowering energy consumption. In addition to this, green buildings also benefit from higher property valuations. Choosing the right commercial building insurance partner that can guide businesses with the vision of future-proofing, especially when it comes to sustainability, is always useful.
Cybersecurity in a data-driven world
It can take years for a business to recover from a cyberattack! After the initial troubleshooting, it can take months to rebuild infrastructure, and years to develop operations and fight legal battles. It takes even longer to rebuild consumer trust which gets hit hard. It’s no secret that commercial buildings house some of the most sensitive data and information. Given that cyberattacks and data breaches are a very real threat, data protection is a growing factor to consider in the commercial building insurance space. Commercial buildings need added cybersecurity measures to ensure that data is safe. From firewall implementation to encryption and regular audits, every measure must be taken to enhance compliance and data protection as well as regulation. Businesses need to recognize the importance of cybersecurity and take up policies that encourage them to minimize these risks. Having a proper policy in place helps secure data and peace of mind. It also builds trust in the tenants and stakeholders.
Shift to remote work
COVID-19 has undoubtedly transformed how we work. Hybrid working has led to a 20% vacancy rate in office spaces. Given that building occupancy rates are declining, one can expect shifts in insurance decisions too as companies choose smaller spaces. Lower occupancy can also pose risks like maintenance issues in underutilized buildings. It’s important to choose policies that adapt to the evolving landscape of commercial real estate.
Fluctuating prices and their impact on commercial buildings
Inflation has a direct impact on costs of maintenance, replacement, and repair such as labor, materials, and energy which also impacts commercial building insurance premiums. This is because fluctuations in cost of materials will directly impact the cost of repairs. This is why it’s important to choose a policy that’s clued into these fluctuations and set premiums and coverage limits in accordance with the current economic conditions. This would help businesses manage risks effectively, even in an unstable, inflationary market.
Conclusion
The world is constantly evolving. It’s very important to be aware of how these changes impact commercial buildings and insurance. Right from environmental impacts attributed to climate change to the adoption of smart technology, cybersecurity, and sustainability, businesses must make sure they’re ahead of each trend as they all present their own set of hurdles and opportunities. At Gonzalez Insurance, no solution is the same, we tailor custom solutions that are unique to your business so you can focus on growth and leave the rest to us.