Leading insurance company Westfield Insurance expects the challenging real estate market to begin in 2024

Pressure continues to build in the property and auto insurance markets, and “challenging” conditions are likely to extend into 2024, according to a business line leader.

“This is a period when carriers are seeing their loss trends increase, and the reinsurance market is tightening, which creates the need to increase their rates,” said Troy Crawford (pictured), head of commercial line product management at Westfield Insurance, which provides business property and liability, personal line and agribusiness insurance.

“What you’re also seeing is a lot of advertising from insurers who are holding back on the kinds of businesses they want to write. We’re seeing a lot of [these actions] Geographically, like in California, where a lot of carriers are falling behind.

“We have no plans to take these types of actions, but I expect we will continue to feel the effects of the tough market going into 2024, particularly for property and auto.”

What will continue to drive difficult real estate market conditions?

The sudden rise in the prices of building materials and labor, along with the rise in interest rates, has led to a rise in replacement costs in a short period of time.

“Over the past two years, we’ve experienced high career variances in some building materials and labor costs for building properties,” Crawford said. “Maybe not many underwriters and agents have lived through this level of change before.”

Aside from inflation, supply chain issues in the pandemic era and reconstruction activities in the wake of extreme weather events have also helped drive prices higher.

“It’s not much new construction [that’s driving construction costs up]but they are fixes from all of the disaster activity over the past six months,” Crawford noted.

“The hurricane that reached Florida, and the hail losses and heat storms in the Midwest, particularly at the end of December, caused a huge increase in home repairs, and that drove up the price of raw materials and the cost of labor as well.”

The price increases are seen as moderate

Inflation rose 3% in the year through June, down from 4% in May, according to the latest figures. The rate has fallen sharply from a four-decade high of 9.1% recorded in June last year.

However, rate increases remain above the Fed’s target annual rate of 2%, which means that more interest rate increases could be on the horizon.

For his part, Crawford believes that the rise in construction materials and labor costs will ease for the rest of the year.

“We expect that in 2023 we will continue to see some of the increases that we’ve talked about,” he said. But we’re starting to see some of those prices moderate. The cost of lumber began to fall. We’re starting to see a little bit more stability.

“But again, it’s very volatile. We’ve talked about a pending recession, and what that might do to the market. So, we expect additional volatility as we go forward.”

Urge agents to check property values

The current environment stresses the need for insurance agents to make sure property insureds have the correct levels of coverage, according to Crawford.

“Depending on material and geographic location, we continue to see significant increases and fluctuating increases,” Crawford said.

That’s why it’s important for our agents and clients to make sure they have the right coverage to protect against property losses. We cannot assume that the valuations we did two, three or four years ago keep up with those inflationary trends.”

So-called “health checks” between agents and their clients are a good opportunity to highlight any building updates that carriers should be aware of.

“It’s a good time, as we update this assessment, to also validate the data we’re using,” Crawford said. “So, what I would suggest is we better partner up. We try to get renewals out early to give agents more time.

“This is so they can understand some of the changes that are happening with policies, work with clients to update property values ​​and make other adjustments, such as a deductible policy, that may help mitigate some of the price increases they see.”

Are you an agent or broker working with the insured on their property values? Tell us about your experience in the comments below.