The US property insurance market for real estate clients is showing signs of softening, according to a recent update from Gallagher.
The firm notes that renewal performance will be influenced by factors such as asset class, construction type, occupancy, risk exposure, and claims history. Multifamily and industrial properties continue to face the most significant challenges in this shifting market environment.
In its report, Gallagher highlighted several key trends in multifamily real estate. Approximately 440,000 apartment units were completed in 2023, marking a 36-year high, and 81% of these new multifamily buildings were constructed using wood frame construction.
Fire risks remain a concern, with the US Fire Administration estimating $10.8 billion in losses from 374,000 residential fires, nearly half of which were caused by cooking incidents. This rise in risk has affected the insurance landscape, particularly for wood-frame properties.
The industrial real estate market has also been reshaped by the post-pandemic rise in e-commerce. Gallagher reports that 1.8 billion square feet of industrial space have been constructed since 2020, surpassing the total built in the previous decade.
Insurers are prioritizing properties with tenant diversity and adherence to fire protection standards, such as NFPA 13 sprinkler systems. Older properties with inadequate suppression systems are facing stricter underwriting scrutiny.
In addition to construction type and occupancy, weather-related risks remain a concern. Hail-producing storms are a significant issue for underwriters, particularly in regions prone to these events.
Gallagher notes that underwriters are raising deductibles and implementing stricter terms, such as cosmetic damage exclusions, particularly for buildings with roofing that may not withstand hail. Properties with roof-installed solar panels may also face difficulties in securing coverage due to increased risk.
Despite these challenges, some areas of the property insurance market are seeing a slight easing in rates. Gallagher indicates that most asset classes are experiencing risk-adjusted property rate changes ranging from flat to +10%, with some exceptions where decreases are evident.
Office assets with strong rent rolls and low crime scores have seen rates ranging from flat to -5%. Insureds with Tier 1 wind-exposed assets in coastal Florida, who faced some of the hardest renewals in 2023, are now seeing year-over-year decreases in rates.
In non-catastrophe-prone areas, such as the Midwest and Great Lakes regions, property rates remain slightly elevated but are still competitive. Gallagher attributes this to these regions being shielded from the sharp rate increases experienced in catastrophe-exposed areas during 2023.
On the casualty side, Gallagher reports that the market is tightening. While property rates are softening, real estate insureds are facing higher casualty rates, tighter terms, and reduced capacity. Rate increases on primary liability placements for multifamily portfolios are expected to range from +10% to +20%, with umbrella rates trending between +10% and +15%.
Insurers are also offering smaller line sizes and higher attachment points, reflecting a more cautious approach to casualty coverage.
Insurers are also focused on reducing their exposure to high-risk claims. Gallagher notes that exclusions for risks such as dog bites, assault, battery, and abuse are becoming more common.
Underwriters are seeking more extensive loss history data—now asking for 7 to 10 years of records—and are paying particular attention to crime scores, especially for multifamily properties.
Despite these tighter conditions, Gallagher highlights some relief in management liability lines, such as directors & officers (D&O) liability and errors & omissions (E&O) coverage. Many insureds are experiencing flat renewals or even reductions of up to -10% in these areas. Additionally, there is improvement in retentions for D&O and E&O, particularly for registered investment advisors and asset managers.
As market conditions continue to evolve, Gallagher emphasizes the importance of insureds preparing for renewals by understanding their risk profiles, providing detailed loss histories, and maintaining proactive risk management practices.
What are your thoughts on this story? Please feel free to share your comments below.
