Most business leaders are likely already aware of the roles U.S. inflation and the increase in global catastrophes play in insurance premiums, but now there’s another factor at work: reinsurance.
Treaties on reinsurance for property coverages (which is a mechanism the insurance carriers use to offset the risk of the policies they write) were finalized in early January 2023, and it was the highest YoY increase that we’ve seen since 1992, averaging 37% globally. Higher reinsurance rates for carriers typically means higher commercial property premiums for the average business are on their way – beginning as early as your next renewal.
Why is this an issue now?
Insurance companies negotiate annual treaties with reinsurers, and nearly 40% of all treaties take place in January. These treaties are structured to provide insurance companies with the guidance and authority needed to operate throughout the year without having to submit every policy to the reinsurer for review.
Based on initial reports, negotiations for the 2023 January treaties increased global reinsurance rates by 37-40%. Due to the increased occurrence of wildfires, hurricanes and flooding in America, treaty renewals for the U.S. went up between 45-100% on average. In addition to higher premiums, the reinsurers have also placed more stringent restrictions on the types of coverage available.
What does this mean for an insurance buyer?
While not every penny of the premium paid by the client goes to pay for reinsurance, insurance companies do have a significant cost to offset their increased reinsurance rates. In addition to higher reinsurance premiums, insurance companies may now have to bear more of the severe claims, which will likely be funded through increased rates to the average insurance buyer.
The next major treaty negotiation will occur on April 1, so more information is soon to come – but the horizon looks dark for property insurance premiums. Be sure to give yourself and your team ample time to prepare for the possibility of a 20-35+% property premium increase before your next renewal discussion.
This content is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice. Gregory & Appel is neither a law firm nor a tax advisor; information in all Gregory & Appel materials is meant to be informational and does not constitute legal or tax advice.