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E&S Market in Commercial Real Estate: Why are Rates Still Soaring?

March 28, 2024 / Carley Skidmore

It’s no secret that inflation was at a 40-year high recently. From gas and groceries to homes and construction materials, the cost of everything went up following the pandemic and the uptick in natural disasters over the past few years. As a result, existing properties, materials, and construction costs have skyrocketed – impacting the value of today’s real estate inventory along with policy limits and prices.

This trend has negatively impacted admitted insurers who must file rates in each state driving more accounts to excess and surplus (E&S) insurers, particularly across states that are most vulnerable to weather-related catastrophes, with its higher-risk and non-traditional insurance needs. The good news? The booming E&S market is ready, willing, and able to take on the risks that admitted markets today cannot. The bad news? It’s going to cost you.

Combined, the increased number of claims and escalating property costs have resulted in higher costs to insure, longer reimbursement periods and building valuation inaccuracies in the market. Add to this the E&S broker fee, state surplus lines tax, and stamping fee that are required by the state. This perfect storm creates a fair amount of confusion and frustration when it comes to securing the right amount of E&S coverage when traditional coverage isn’t fitting the bill.

Because of the individual risk approach, the E&S market does allow for a more flexible approach in managing risks for all types of properties, especially those with more unique requirements. As a result, alternative options to property coverage like high deductibles, captives and E&S coverage have significantly increased in popularity particularly for niche risks. In fact, E&S premiums in 2023 reached nearly $73 billion, according to data from 15 state surplus lines offices released by the Wholesale & Specialty Insurance Association (WSIA).

According to a December 2023 article in Business Insurance, excess liability line insurers continue to see more losses penetrating umbrella layers, so rates will likely increase between 7% to 15% for large companies and 4% to 10% for small and mid-sized companies.

Yes, we are in a challenging market in unpredictable times and risks are getting more complex – not less. But with a little innovation, customization and creativity, the E&S sector provides new ways to protect even the most vulnerable properties.

Protecting your assets right now present its own set of challenges, which is why you need a property insurance partner who understands traditional and the E&S market like CREIS. At CREIS, we exclusively address the coverage needs of today’s commercial real estate market and the best possible approach to managing your unique risks today. Let’s talk.

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