24.01.24

Commercial Property Insurance – market outlook for 2024

How 2024 may shape up for commercial property insurance

The commercial property insurance market has faced rising premiums for several years. Although the market remains challenging, signs of rate softening are becoming apparent. According to insurance broking and risk management company, commercial property insurance increased by 4% in the second quarter of last year, down from the 7% increase in the previous quarter. Rates may continue to stabilise in 2024. 

However, the challenging economic climate makes predictions difficult. The Bank of England reports that there is a 50-50 chance of a recession in spring, which could impact insurer investments and have knock-on effects for policyholders. Other factors that weigh on the market include inflationary pressures, construction industry labour concerns and extreme weather events. As such, premiums could rise and cover may become more restrictive, especially for those located in natural disaster-prone areas.  

Developments and trends to watch

• Extreme weather events – Severe weather often causes significant property damage. As such, the rising frequency and severity of natural catastrophes continue to pose concerns in the commercial property insurance market. Insurers expect to pay out an estimated £560 million to help customers who suffered damage caused by recent storms Agnes, Babet, Ciarán, Debi, Elin, Fergus, Gerrit, Henk and Isha according to the Association of British Insurers. Compounding concerns, the heavy rainfall associated with these, and future storms may increase ground saturation and soil swelling in some areas— coupled with a dry summer, this could increase the risk of subsidence. 
• Inflation – The commercial property insurance segment has been impacted by inflation issues in recent years, prompting higher premiums and claim expenses when losses occur. Even though cost inflation for materials has eased, build costs are still expected to rise by 3% during 2024, according to the Building Cost Information Service. Although not the steep inflationary increases seen in the market previously, prices remain significantly higher than pre-COVID-19 levels, affecting property repair and replacement expenses related claims. Moreover, rebuild cost inflation could leave policyholders underinsured if they don’t review insurance-to-value (ITV) calculations. 
• Labour concerns – The Construction Industry Training Board predicts more than 200,000 extra workers will be required to meet UK construction demand by 2027. Such labour challenges could result in construction projects becoming more expensive and taking longer to complete, which could increase associated claims costs. However, evolving technology— such as artificial intelligence and 3D printing—could help the construction industry achieve efficiencies and improve productivity in the future, offsetting some of these labour concerns. 
• Reinsurance capacity – Global reinsurers have limited their capacity and tightened terms and conditions amid the uncertain market, especially concerning volatile weather-related losses. However, reinsurance rate increases for property catastrophe businesses are beginning to slow, according to credit rating agency Fitch Ratings. Should reinsurance rates stabilise, there is hope that insurers may have an improved appetite for risk and expand their cover offerings to policyholders.

Practical tips insurance buyers and policyholders

✓ Adopt robust property management practices and immediately address building issues that could lead to losses and subsequent claims. Provide all relevant loss control documentation to your insurer

✓ Determine if your commercial property is in an area prone to certain types of natural disasters, such as flooding. Implement adequate mitigation and response measures

✓ Proactively prepare for extreme weather events to reduce losses. Specifically, develop or review your business continuity plan to help your organisation remain operational and minimise damages in the event of an interruption

✓ Ensure accurate ITV valuations. From there, determine whether you need to adjust your organisation’s policy limits to avoid the perils of underinsurance

✓ Work with insurance professionals well in advance of your renewal date. Doing so will make sure your application has ample time to be adequately evaluated by underwriters

Cox Mahon is a leading specialist insurance broker with extensive experience in commercial property insurance solutions for all property – regardless of its size, and several other areas. Focused on serving clients’ best interests, we offer professional and specialist advice and comprehensive coverage options to ensure peace of mind and financial protection. 

Information provided by Zywave and contributed by Harrison Law, Cert CII, Head of Commercial & Private Clients, Cox Mahon

This Market Outlook is not intended to be exhaustive, nor should any discussion or opinions be construed as professional advice. © 2024 Zywave, Inc. All rights reserved.