Every commercial insurance buyer will feel the effects of the firming property market, whether through higher premiums, less capacity, stricter terms, or all three, according to the 2021 U.S. Property Market Outlook by Risk Placement Services (RPS), the excess & surplus wholesale broker and managing general agency.

In the first half of 2021, insureds can expect to see rate increases range in the high single digits to 15% on clean accounts—and even higher on accounts with losses, according to the report.

One of the main causes for the increase are higher reinsurance costs. According to the report, insurers paid rate hikes upwards of 10-15% to renew their treaties at year-end 2020 on top of midyear rate increases averaging 25-35%.

In 2021, reinsurance will “play a larger role in rates, capacity and terms as carriers continue to improve their book composition and move toward the use of 'technical pricing'," said Wes Robinson, national property brokerage president of RPS. Although reinsurance rates have climbed precipitously, “the losses have not let up, so many carriers are still not making money," he said.

Natural disasters and risks associated with climate change are also contributing to the increases. In 2020, hundreds of wildfires burned millions of acres prompting a market exodus from the western U.S. Further, an upsurge in tornadoes in the southern Midwest, as well as the 12 hurricanes that made landfall, mean that the majority of properties are exposed.

With less capacity for property, agents and brokers who look to the E&S market to find sufficient coverage will be forced to access multiple insurers needed to assemble higher excess coverage limits, the report said.

Further, supply chain disruption is also causing uncertainty surrounding rebuilding costs both in the near and long term. As a result, underwriters at many excess carriers are re-rating policies internally, pricing the risks as much as 40% higher than what is submitted or what their models estimate, according to RPS.

“Insurance-to-value is a very, very hot topic, and it will be again for 2021," said Stephen Adair, senior vice president at RPS. “It has been challenging placing excess coverage without solid valuations."

Other terms and conditions of note in the wake of COVID-19 include new communicable disease and riot exclusions, and more restrictions on time element, ingress/egress business interruption cover, the RPS report said. These restrictions should be watched closely, especially on vulnerable classes of business such as dine-in restaurants and those with storefronts.

Will Jones is IA editor-in-chief.