Three Sectors of US Real Estate Industry Facing Insurance Challenges

Multi-family dwellings, brownfields, and REITs could see higher insurance pricing in 2015.

The US real estate industry experienced relatively stable insurance pricing for most lines of coverage in 2014. Property, casualty, and financial and professional liability rates are generally expected to soften in 2015, barring unforeseen changes, according to Marsh’s recently released US Insurance Market Report 2015.

Despite overall good results, certain sectors are facing insurance-related challenges:

1. Multi-family dwellings: Poor loss experience in the multifamily dwellings sector has resulted in higher property insurance rates and declining limits. Habitational insureds — particularly related to multifamily frame housing — typically are seeing poorer results than other parts of the real estate industry. Similarly, general liability insurance rates typically increased faster for habitational exposures than for other segments, with few insurers willing to write portfolios with significant habitational components. Some insurers have restricted the writing of new apartment exposures, which is likely to bring further firming in this area in 2015. In addition, organizations within tornado alleys will continue to be challenged at renewal.
2. Real estate investment trusts (REITS): Non-traded real estate investment trusts and mortgage REITs felt financial and professional liability insurance pricing headwinds to start 2015. Further, real estate companies that experienced dramatic changes to their risk profiles generally saw pricing that differs from the average. Litigation trends could also affect financial and professional liability insurance rates and terms.
3. Brownfield transactions: In 2014, carriers demonstrated an appetite for brownfield transactions. Nonetheless, several of the leading environmental insurers tended to be less supportive of projects with considerable legacy risk. While there continues to be sufficient appetite for 10-year policies, underwriting requirements continue to be comprehensive. This year, we could see premium increases, including automatic acquisition rate increases.

Responding to Insurance Market Challenges

To obtain the best underwriting outcomes companies must clearly define and prioritize their renewal goals and ensure that their data is complete and accurate. Underwriters continue to seek comprehensive information, particularly for brownfields transactions. Information availability and quality are critical to a successful renewal. As we saw with the temporary lapse of the federal backstop for terrorism insurance, risk differentiation is critical for insureds as they compete for insurer capacity.

For more information on insurance market conditions and risk trends for real estate companies, read our US Insurance Market Report 2015.

About the Insurance Market Report

The US Insurance Market Report is one of six regional reports that analyze insurance market conditions and risk trends in 62 countries worldwide.