In our last blog post we talked about the importance of understanding your client’s exposure, values, risk management strategies and policy wording – especially when dealing with a hard market in the insurance industry like we are today.
Challenges Facing Brokers and Clients Is Significant
With Insurance Companies tightening their underwriting requirements, increasing premiums and deductibles, and reducing limits, the challenges facing brokers and their clients is significant. Placing a client’s business – regardless of whether they have had a claim or not – can be a daunting task, and where you might have had 2 or 3 insurance companies on a risk before, today we are seeing upwards of a dozen companies now involved.
Advantages of Comprehensive Risk Assessment Reports
Having a comprehensive Risk Assessment report on your client’s operation is a huge advantage for brokers to successfully market their client’s business to the industry. This third party, arm’s length report provides an objective overview of your client’s operation – the hazards associated in the operation and the controls in place to manage these hazards – so that the underwriter has an excellent picture of the risk, they are preparing to take on.
Understanding Different Types of Clients
While many insurance companies today will categorize clients based on, the type of business they operate, this “broad brush” approach can affect many clients with limited or no loss experience. The residential/condominium market is a good example of an industry that has been hit hard given the high number of losses in this type of occupancy. However, in saying this, not all clients will fall under this category. Understanding what separates these clients from the rest is the message that needs to get across.
Solid Risk Management More Critical Than Ever
The insurance market is still well capitalized, however, insurance companies are becoming more selective to write only good quality risks. Solid risk management strategies are now more than ever a critical component for managing your client’s business. A comprehensive Risk Assessment report will provide you and your client with an invaluable tool to assist in mitigating losses, while at the same time providing you the leverage to differentiate your client’s business from the masses during insurance renewals or placement.
Our Risk Management & Valuation Services
If you have any questions on the various Risk Management and Valuation services we can provide, please contact one of our offices, we would be happy to help.
In our February 2019 Industry Insight article, we looked at the insurance industry focusing on building resilience with those insured to be prepared for natural disasters. The underlying premise being that natural disasters will occur; it is no longer an “if”, it is about the when.
In that article, we pointed to the insurance markets hardening to face the pressure of mounting losses. We are now in the midst of a hard property market and the impact on renewals and premiums is certainly felt.
“Characteristics of Soft and Hard Markets.
A strong economic climate, a favorable legal environment and/or few catastrophic events can increase insurers’ capacity, creating a soft insurance market. When the market is soft many insurers are competing for business and premiums are generally low. Insurers relax their underwriting standards and coverage is widely available. Underwriters are generally flexible and willing to negotiate coverage terms. Broad coverage is available with some extensions available for free.
A series of catastrophic events, a litigious legal environment and/or a poor economy can reduce insurers’ capacity to write new policies. The result can be a hard insurance market. A hard insurance market is the opposite of a soft one. When the market hardens, insurers tighten their underwriting standards. Some coverages may be difficult to secure as fewer insurers are competing to write policies. Premiums are relatively high and insurers are disinclined to negotiate terms. Broad coverage may be costly or unavailable but some coverage extensions may be available for an additional premium.” (1)
As the chart below depicts, we do have catastrophic events and their costs rising, which are having a direct impact on the insurance market hardening (2).
We are seeing the insurance market acknowledge the hardening of the property market and what that means for insureds, brokers, and property managers in property markets.
“At the end of 2018, the property market had begun to see some firming, and that continued into Q1 of 2019. As we move into Q2, this trend has not just continued; it has accelerated.”
“The message for retailers is that things are changing in property more quickly than expected, and the changes are deeper than anticipated,” says Harry Tucker, Executive Vice President and National Property Practice Leader for AmWINS.
Adverse loss development has been a catalyst in this acceleration. Two consecutive years with combined ratios exceeding 100% across the market has heightened the focus of management teams and underwriters to drive rate and reduce aggregate exposure. Increasing rates are creating a deeper and broader change in the market. The obvious tough classes – including frame habitational, recyclers, and open lot – were the first to be affected, but now the trend has crept into broader classes and non-CAT exposed business.
“Along with rate increases, we are seeing more tightened risk selection, reductions in limits, increased deductibles, and close review of policy forms,” says Tucker.
However, the bright spot for clients is that the market is still well capitalized. “Carriers still want to write premium,” says Tucker. “The difference today is that they are applying a level of underwriting discipline we haven’t seen in quite some time.”(3)
The below graph graphically depicts the pricing trends in property renewals (4):
As property owners and/or tenants, brokers, and property managers, we would encourage you to look at your insurance program against the backdrop of the increase in natural disasters driven by climate change and the changes to occurring as underwriters are dealing with these variables as they develop insurance premiums. You need to understand your exposure, your values, your risk management strategies and your policy wordings. Being forewarned, will assist you exponentially in the event of a loss.
A Standard Unit Definition is a list of what parts of a typical condominium complex could be maintained and insured by the condominium board. The Standard Unit Definition for your development will detail exactly what the Condominium board is responsible for, and not responsible for.
For example, a typical Standard Unit Definition for a residential development could indicate that the condominium corporation is responsible to maintain and insure the structure: electrical, plumbing, and HVAC systems; wall and ceiling finish such as drywall and paint; floor finish such as carpet or tile; interior doors; interior electrical, plumbing, and HVAC fixtures; interior doors, casing, and baseboards; and built-in appliances, etc.
In this example, the condominium corporation is responsible to have adequate insurance in place for those items.
The preceding is not an exhaustive list, and in fact, a particular Standard Unit Definition could include more or less components. For example, the Standard Unit Definition may include the drywall for the walls and ceiling, but not the paint that is on the walls and ceilings.
This is especially the case with Standard Unit Definitions for non-residential units. Quite often, a non-residential Standard Unit Definition includes the shell only, with the unit owners being responsible for all other components.
Do we really need Standard Unit Definitions in the Bylaws?
Our recommendation is YES, for a number of reasons.
Mostly it is about insurance. The condominium corporation is responsible to acquire and maintain adequate insurance coverage for all common elements, including the items in the Standard Unit Definition. Insurance for all other components are the responsibility of the unit owner.
Without a Standard Unit Definition, both the condominium board and unit owners would be uncertain about what they need to insure. This could result in overlaps in coverage, resulting in insurance levies being too high. Worse, a gap in insurance coverage, which is a significant increase in risk.
Another reason to have Standard Unit Definitions is that they set minimum quality and décor standards for all units. This is important to ensure that the entire development maintains its overall level of quality and consistent esthetics. Otherwise, individual unit Market Values could suffer.
Finally, some condominium corporations have used Standard Unit Bylaws as a strategy to limit corporation claims, which can affect their premiums significantly. This strategy can put more onus on unit owners to pay particular attention to their personal coverage and how that fits into the corporation’s coverage.
What are Betterments and Improvements?
It is important to note that Standard Unit Definitions do not include Betterments and Improvements.
Betterments is a term to describe when an owner has upgraded a component that is part of the Standard Unit Definition. For example, consider a residential condominium development where the Standard Unit Definition includes carpet floor covering, and a particular owner has replaced the carpet with hardwood. In a case such as this, the hardwood is the “Betterment”. The condominium corporation would be responsible to carry sufficient insurance to replace the flooring with carpet only, and the unit owner would be responsible to carry insurance to pay for the upgrade to hardwood.
Improvements are those components that are installed in addition to the Standard Unit Definition. This is quite common with non-residential units. For example, a Standard Unit Definition in a commercial office condominium unit might include only “shell space”. The unit owner would be responsible for the costs to install the interior development, and to insure the improvements.
Speak to us about our Standard Unit Definition services today!
The Suncorp Valuations team will be attending RIMS 2019, the largest Risk Insurance Managers Conference in Boston, MA from April 28 to May 1, 2019. Meet us there at booth #482, and enter to win our draw prize too! More info below.
This is the preeminent convention and trade show for Risk Insurance Managers and Insurance Brokers from the US, Canada and internationally.
Find Us At Booth #482
We will be setup at booth #482, so come visit us! We are right in between booth 387 and 379. In the map, we are the top booth of the two between 387 and 379. See below for where we are in the exhibit map!
We are inviting attendees to our booth, and announcing that we will have a substantial draw prize (right now we are looking at a video game or drone with camera). Visit us, and enter to win our draw prize too!
Our Event #Hashtags
Hashtags we are using throughout social for this event;
Agricultural land value trends are on the rise. As the graph below illustrates, the world population has increased dramatically since the Industrial Revolution, circa 1800. (1)
Will Farmland Price Values Increase Over Time?
The world population growth coincides with access to energy, which led to innovation in creating and managing food supply. As a full service appraisal firm with offices across North America and completing engagements worldwide, we are often called to assist firms with the valuation of facilities involved in food processing. As many of our clients have grown their facility footprint, we have seen dramatic jumps in the value of agricultural land that provide the inputs for their processing. Unlike new facilities, agricultural land cannot be created. Combine the population growth with the effects of climate change, and it is easy to see the trend for agricultural land values across the globe will continue to rise.
Agriculture Land Price Trends in Europe
Europe continues to lead the pace of growth in agricultural land values.
In 2016, the exchange rate for Euros to US Dollars was 1 to 1.24; accordingly 63,000 Euros (the benchmark price per hectare in the Netherlands) converted to $78,031 US Dollars. Converting hectares to acres at 1 to 2.5 meant that the land agricultural land value in the Netherlands was $31,200 US Dollars per acre. (2)
Agriculture Land Price Trends in North America
In the United States and Canada, we see the escalation in agricultural land values as well. For 2017, the United States Department of Agriculture shows the benchmark value across the country at $3,080 per acre, up from $3,010 per acre in 2016. (3)
In Canada, percentage growth rates for agricultural land continues to grow, taking the province of Saskatchewan as an example, you see the benchmark prices per acre trending up-wards. (4)
Measuring The Risk of Farmland Ownership
Given the trend of rising agricultural values, it is interesting to measure the risk of land ownership. This graph illustrates the security of owning land in various countries as developed by Savills Research. They leveraged various reports and data sources to the lay the foundations of the matrix. Savills Research from 2002 to 2016 highlighted the strong and steady rise in the value of farmland globally. (5)
Agricultural Land Price Values Will Continue To Rise
We assert that world agricultural land values will continue to rise in the next 3 to 5 years, in particular in those countries where an adequate risk/benefit score can be achieved, such as shown by the above graph.
Natural Disasters Are On The Rise and The Insurance Market Is Changing – are you prepared?
The UN Office for Disaster Risk Reduction (UNISDR) has released its report on Economic Losses, Poverty and Disasters 1998-2017. The reports opening comments paint the reality of a changing landscape for the insurance market.
“If development and economic growth are not risk informed, they are not sustainable and can undermine efforts to build resilience. The economic losses which often ensue from the creation of new risk or exacerbation of existing levels of risk can have a significant human cost.” (1)
As the graph below depicts, the occurrence and the cost of natural disasters is increasing dramatically (National Oceanic and Atmospheric Administration) (2):
The implications of these natural disasters and their increasing frequency and severity has a material effect on the insurance industry. For the first time in several years we are seeing the signs of the insurance market hardening, this means you as property owners and/or tenants may face revised policy wordings and certainly increasing premiums.
The Canadian Underwriter magazine recently polled commercial brokers, they expressed that premiums are on the rise and there is concern among them about the implications to their clients.
“Ninety-one percent of commercial brokers surveyed by Canadian Underwriter reported seeing price increases in Canadian commercial property lines.
Fifty-nine percent of commercial brokers said higher prices in commercial property lines has had “some” impact on their clients. A further 26% described the impact as large.”(3)
The Canadian experience of natural disasters follows the pattern of worldwide losses, an alarming trend (McGillivray, 2016) (4):
As property owners and/or tenants, we would encourage you to look at your insurance program against the back-drop of the increase in natural disasters driven by climate change and the likely changes to occur as underwriters are dealing with these variables as they develop insurance premiums. You need to understand your exposure, your values, your risk management strategies and your policy wordings. Being forewarned will assist you exponentially in the event of a loss.
One of the best sources of information we have come across is the recently produced brief by BOMA Canada – their 2019 Resilience Brief. A very worthwhile read as you meet with your broker(s) to consider your insurance program.
