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RPS warns property rate reductions unlikely in 2022

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Property insurance buyers should be cautious about expecting significant rate declines in 2022, according to according to RPS executive James Rozzi.

Rozzi, who specializes in large catastrophic placements and serves as an executive vice president in the wholesale broker’s San Francisco office, noted that many insurance carriers will struggle to make a profit this year, and that despite increased rates, property portfolios are still underperforming.

“The last few years have been unlike any other period in insurance history because, despite increased rates, carriers’ books are still not performing, which indicates that while rates may level off, we should all be cautious about anticipating or expecting meaningful rate reductions in the year ahead,” Rozzi said.

The executive was providing a market outlook in the broker’s third-quarter property state of the market update.

According to Rozzi, early expectations are that reinsurance rates will increase in the mid-to-high-single -digit range, and carrier costs will continue to spike in the coming year.

He also highlighted property valuations as a core concern brought up by underwriters during client renewal meetings.

“The biggest problem in the property marketplace today is insurable values and how clients determine their replacement cost, and how they adjust these replacement cost metrics over time,” he said.

“This is likely one of the single biggest factors that is contributing to the lack of profitability among insurance carriers because even though rates are adequate, these rates are on values that are suppressed because of a massive uptick in the costs of both labor and construction materials worldwide,” Rozzi continued.

The executive also noted that social inflation has become a “major concern” for the P&C industry, as the legal framework in some states is “slowly stripping away” any protections that carriers might have against clients who file claims three years later, in what a “common person” would call “bad faith”.

Finally, Rozzi discussed the issue of anomalies and shock losses that derive from changes in climate.

“I really don’t care what side of the global warming conversation you are on and frankly, it doesn’t matter because this is not a political statement but more of a fact: weather patterns are changing,” he said.

He went on to say that Winter Storm Uri is a “prime example” of a major event that “no underwriter ever priced for or contemplated because no one ever envisioned waking up and seeing the state of Texas frozen solid for three days.”

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