Commercial real estate market showing signs of stabilization with plenty of available space: Insurance firm

The recent analysis by USI Insurance Services reveals promising indications of stabilization within the commercial property market. This year, buyers deemed to have advantageous risk profiles are likely to witness either rate decreases or minimal single-digit increases. In contrast, entities with adverse loss histories might experience rate hikes ranging from 5-15% in the first half of 2025, compared to steeper increases of 10-20% witnessed in the latter part of 2024.

USI further anticipates a surplus in capacity due to favorable underwriting outcomes for insurance and reinsurance companies. Global insured losses from natural disasters hitting $135 billion in 2024, as per Swiss Re, are poised to keep insurers cautious in their risk selection and deductible levels. Nevertheless, policyholders with favorable risk profiles can anticipate some relief in rates. Notably, challenges persist in placing risks associated with senior housing, frame apartments, vacant properties, foreclosures, and receivership. Exposure to wildfires and severe convective storms continues to constrain available capacity.

The emergence of hazards linked to lithium batteries from electric vehicles poses a novel concern, as these batteries tend to spark intense fires that are difficult to extinguish. Moreover, electric vehicles typically weigh 30% more than conventional internal combustion vehicles due to their lithium battery weights, heightening the risk of parking structure collapses.

Alternative risk transfer mechanisms remain a popular choice, with a surge in demand expected for parametric insurance products throughout 2025. Some of the key insights highlighted in USI’s report encompass various sectors:

Commercial auto: Smaller fleets with favorable loss histories might observe flat rates or moderate increases up to 5%, while larger fleets or those with unfavorable loss histories could experience rate spikes of up to 30%.

Workers’ compensation: Although rates and premiums are projected to decrease overall, the decline will be slower than in previous years. The profitability of workers’ comp for most insurers stems from decreasing claims frequency and moderate loss severity trends, resulting in premium cuts despite expanding payrolls.

Umbrella/Excess: Middle-market buyers can anticipate flat rates or increases up to 10%, while larger buyers might witness increases ranging from flat to 15%, contingent on prior loss history and business class.

Directors and Officers Liability (D&O): Public company D&O rates are anticipated to remain stable or decrease by up to 5%, whereas private company and not-for-profit rates might see reductions of up to 7.5%. Notably, there has been an uptick in securities class-action lawsuits and misleading claims linked to artificial intelligence.

In conclusion, the insurance landscape for 2025 appears to offer a mixed bag of prospects based on the evolving dynamics within the commercial property market. Insurers and reinsurers are expected to navigate these challenges to ensure a stable and secure environment for policyholders.