Real Estate
Strong risk appetite in the London Market
With new entrants emerging, the market can now be described as ‘soft’: risk appetite for well-run real estate assets is strong, and numerous insurers are fighting for business. However, insurers often remain cautious of residential risks with either combustible cladding, or where there is a trend of reoccurring water damage. The latter applies particularly to buildings that have just reached ‘Practical Completion’ as this is when water systems come into full use and defects can emerge.
Changes in policy terms and conditions
If capacity and competition for business remains strong, we expect enhancements in coverage and limits to become more commonplace.
Underwriting changes
A number of senior underwriters have moved between insurers, not least because a number of insurers including AXA, Generali and Swiss Re are looking to build their European real estate offering. More insurers are now actively targeting real estate business with notable recent additions including Travelers, Swiss Re and CNA Hardy.
Notable claims
Water damage losses continue to be prevalent, especially following heavy rainfall with surface water run-off in isolated areas. There have also been several well publicised large fire losses linked to solar panels located on building roofs and to combustible materials in residential buildings.
Geographic/sector differences
There’s very healthy competition for well-managed European real estate portfolios and insurers still prefer commercial portfolios over residential assets.
New solutions
Clients are increasingly exploring parametric solutions to complement or augment traditional cover, particularly in territories with natural catastrophe exposures.
The McGill reinsurance facility for residential buildings with fire safety issues is popular among insurers to provide more cost-effective solutions for leaseholders.
With new entrants emerging, the market can now be described as ‘soft’: risk appetite for well-run real estate assets is strong, and numerous insurers are fighting for business.
Outlook
Expected range in rate changes for the next 6 months for claims-free portfolios
We are seeing well-run portfolios with attractive combined operating ratios achieve either nominal rate savings, or level terms. However, outcomes very much depend on the portfolio composition.
Expected capacity change in the next 6 months for claims-free portfolios
New entrants continue to drive capacity increases whilst some insurers want to actively increase their premium market share.
Expected coverage change in the next 6 months for claims-free portfolios
Amid ongoing competition to write new business and retain existing business, we predict coverage and limit enhancements for the attractive portfolios.
A number of senior underwriters have moved between insurers, not least because a number of insurers including AXA, Generali and Swiss Re are looking to build their European real estate offering.
Emerging risks
Whilst environmental, social, and governance (ESG) is high on the agenda for a number of clients, we are monitoring closely how the insurance industry balances ESG pressures in the real estate sector. The following are current hot topics for insurers:
- Installation of electric vehicle chargers - the installation of chargers should be discussed with insurers to ensure they are installed in the optimal position on the premises.
- Solar panelling – again insurers are conscious of how these are installed and who by; furthermore, it is important that the construction materials of the roof are non-combustible to reduce risk to insurers.
- Modern methods of construction such as the use of cross-laminated timber (CLT) remains relatively untested territory for insurers: we expect positive movement in the market to a more accommodating stance. However, insurers remain reluctant to underwrite these risks on an individual basis outside of portfolio arrangements.
- Modular construction is also an area whereby the loss data is sparse and therefore insurers remain sceptical around their involvement in this type of construction. We have, however, seen more acceptance in the market over the past 6-12 months.
Renewal recommendations
Brokers and clients should pursue a differentiated market engagement strategy to achieve the best deal. This will involve demonstrating awareness of potential ‘blind spots’, and conducting an annual strategic review, ensuring the programme design evolves to meet changing needs in both the short and longer term.
Building a strong tripartite relationship with insurers remains key. To further ensure costs are minimised, brokers should conduct regular premium benchmarking exercises. With the market softening quickly, it may also be wise to reconsider insurer Long Term Agreements (LTA), and not to settle for the terms of the existing agreement. A stepped-rate increase, or level premium rating over a three-year LTA may no longer look attractive.
For further information, please visit the Lockton Specialty page, or contact:
Rob Hunter
Senior Vice President, Global Real Estate & Construction
E: rob.hunter@lockton.com
Ben Warman
Practice Leader, Global Real Estate & Construction
E: ben.warman@lockton.com