When it comes to the excess & surplus lines property market, the year continues to unfold as predicted: The market environment remains challenging and is expected to continue without any material change through 2021 and into early 2022. Record wildfires, hurricanes, construction losses and convective storm losses continue to hurt carrier balance sheets and trim margins, despite close to two years of double-digit rate increases.

This year, most carriers' rate increases are averaging more than 15% on their property business, yet combined ratios are not where carriers want them to be. In addition, Hurricanes Sally and Laura were not considered major market events, but they have proven to erode margins that carriers need.

Carriers continue to operate cautiously. New capital is coming into the market, but it is being universally deployed in a very disciplined manner. Carriers and managing general agents are tightening terms, reviewing broker forms heavily and controlling their line size on just about every deal. This lengthens the brokering process and makes deals that much harder to put together.

When you sprinkle in continued COVID-19 concerns and ongoing social unrest in many American cities, every decision a client or carrier makes is economically relevant.

We are beginning to see increased competition as new capacity starts to trickle into the market, a sign that rate increases will level off in time. While the influx of competition is likely to lessen premium increases and make it easier to fill holes in programs, it is not indicative of a softening market. In distressed asset classes like multi-family, wildfire business and hospitality, markets will continue to seek rate hikes until renewal retentions drop.

Carriers are enjoying some of the highest renewal retention levels they have seen in years—on top of trimming exposures that they deem less desirable from their books. Carriers are also dealing with a difficult reinsurance market because the retro reinsurance market is stagnant and when carriers cannot get the protection they need, it makes underwriting far more challenging.

Carriers will continue to struggle with an uncertain global economy, as the long-term effects of COVID-19 on business, insurance-related claims and remote work will take a long time to play out. Another concern is the growing number of vandalism claims coming into the market at staggering loss levels, due to social unrest.

On the client side, there are major economic issues. COVID-19 is causing ongoing hardships for many businesses and short of another government stimulus bill, capital is getting harder to come by.

Property clients, particularly in the travel and leisure, retail, hospitality, and food and beverage industries, are dealing with increased costs and few signs that income will return to pre-pandemic levels in the near future. Hotel operators have had their worst year ever. Restaurants are struggling just to stay in business. Retail stores are seeing fewer shoppers because more consumers are buying online.

These are tough times and clients are looking very carefully at increased insurance costs. Over the last six months, this has driven some customers to buy lower limits or even drop some coverages altogether when they are not required by lenders or equity holders.

Nevertheless, it is important for clients to keep in mind that carriers who don't make a profit and don't bank more premium dollars for future events may not be able to stay in business or continue to provide the capacity clients need.

As we wrap up 2020, all these factors will play a major role in the insurance environment going into 2021.

It is difficult to break down the market by asset class in light of current uncertainties around the pandemic, change in president and civil unrest across the country. Multi-family accounts will remain challenging and wildfire exposure is getting close to uninsurable.

However, for every challenging deal in this space, there will be an alternate example of a smooth renewal.

Excess hospitality coverage will continue to be problematic, but primary coverage is starting to get easier to place because underwriting margins and favorable deductibles have returned to those layers. Loss-adverse accounts will continue to be re-underwritten and will see rate increases above market levels. But for every large increase that doesn't make sense, there will also be a story about a flat renewal that probably needed an increase.

The bottom line? All parties involved in the insurance transaction are doing their best in this current market.

It's important for agents to manage client expectations. It's a tough message to deliver, but clients will appreciate the honesty upfront, as opposed to surprises later on.

James Rozzi is area executive vice president of Risk Placement Services brokerage, property.