Property Insurance

For many companies, it is becoming incerasingly difficult to obtain the right property insurance cover at a good price. Insurers are demanding premium increases. By doing so, they are responding to the fact that, for several years, they have been operating in the red in this line. Corporate customers have few opportunities to avoid a price increase by switching their insurer: following a company merger and the withdrawal of several insurers, the property insurance market is set to shrink.

Market Situation

It is anticipated that companies will spend roughly EUR 6.7bn on industrial, commercial and agricultural property insurance in 2018, representing a price increase of 2 per cent.

Based on initial forecasts, insurers' loss expenses will amount to approximately 89 per cent in 2018, higher than in 2017 (78 per cent). For insurers, this would mean a combined ratio of 111 per cent (previous year: 100 per cent). The most expensive losses occur in the industrial property insurance line.

A number of major insurers have already announced that they will respond to their uneconomical income situation by introducing higher premiums. In some cases, this will only concern selected industries; in other cases, all companies obtaining coverage from one and the same respective insurer will be affected.

Trend in premiums and losses …

…in property insurance

* Projection

Sources: GDV; own calculations

Outlook

With the planned merger of AXA and XL Catlin, the number of major leading insurers is set to shrink. It is not yet clear whether this trend will be accompanied by a shortage of capacity in the insurance market. It will be interesting to see whether other leading insurers will respond to the merger with fiercer competition.

Insurers Amlin and Mapfre have announced their exit from the German market. This, however, is unlikely to cause capacity constraints. It is expected that the situation will be corrected by other players in the market. Whether this will lead to price increases for corporate customers will depend on the industry in which they are operating and on how insurers assess the risks to be covered.

Accordingly, corporate clients are set to experience different market trends. There will still be sufficient capacities for clients with 'desirable operating modes'. Higher rates are not likely to be expected in this buyers' market. In addition, there are more complex operating modes, although there are still sufficient cover capacities available in the German market. However, whether companies will have to face premium increases in this field will depend on how insurers assess the risks to be covered, whether the companies have good fire protection and whether they have already suffered high losses in the past.

From the insurers' point of view, critical operating modes are typical of the wood-processing, meat-processing and chemicals industries, as well as recycling companies. Although the loss situation has, in this respect, improved in many fields, the above mentioned industries still have to be prepared for rising rates, higher deductibles and specific safety requirements, especially as the risk standard requested by insurers has not yet been achieved. In such cases, companies will have much more difficulty complementing their insurance cover by establishing an insurance syndicate or they will seek alternative opportunities by resorting to special solutions on international markets, reinsurance policies or fronting. This is because there is only a small number of insurers dealing with such risks. Insurers who have excluded themselves from underwriting such risks in the past will not revise this decision.

Market Trends

The damage caused by hurricanes Harvey, Irma and Maria last year is still having an impact on how primary insurers and reinsurers assess these risks in exposed areas. The land surface damage caused by these hurricanes has also entailed particularly high business disruption loss, by far exceeding insurers' expectations. They will therefore be less inclined to offer insurance protection for risks of that kind.

In addition, insurers will seek to ensure that their corporate clients make their risks transparent and have a good risk management process in place. Companies can also earn Brownie points by following the insurers' recommendations for loss prevention. This will be noticed in particular by many providers before they grant insurance cover. Companies that manage to convey to insurers that the aforementioned aspects are key parts of their corporate action will benefit from clear advantages when purchasing insurance policies.