Commercial property insurance rate hikes accelerated at midyear renewals, with increases ranging from 20% on average to 50% and higher for catastrophe-exposed risks, as insurers continued to cut capacity and tighten terms and conditions.

With no rate relief in sight, commercial property insurance buyers reduced limits, retained more risk and purchased alternative coverages such as parametrics.

Property market conditions through the end of the year are likely to remain challenging, as inflation and reinsurance costs continue to pressure the market, though conditions could improve if hurricane losses are low, experts said.

Colorado State University’s Department of Atmospheric Science last week forecast nine hurricanes and four major hurricanes, more than previously expected.

Demand for property insurance far exceeds supply, said Rick Miller, Boston-based U.S. property leader for Aon PLC’s commercial risk solutions division.

“All accounts are under rate pressure, regardless,” but for shared and layered business, rate increases were north of 20% in the first quarter and worse in the second quarter, he said.

For single-carrier property accounts, rate increases are lower, in the 10% to 15% range, Mr. Miller said. Looking ahead, buyers should be prepared for continued rate hikes, he said.

“Across our book right now, the average rate increase is around 22%,” said Kathy Bettencourt, New York-based Northeast property broking leader at Willis Towers Watson PLC.

“For Florida wind or California earthquake, standalone pricing trends are some of the highest, and we’re seeing sometimes those in excess of 50% or more,” she said.

In Florida and Louisiana “income and capacity are walking away,” and rate increases are in the high double digits and into triple digits on some renewals, said Michael Rouse, New York-based U.S. property practice leader at Marsh LLC.

Prices for California earthquake coverage have escalated, and capacity has been reduced, he said.

“People are incredibly concerned as to whether or not the models are accurate and what could happen following a major earthquake from a demand surge standpoint on rebuilding and materials,” Mr. Rouse said.

Renewals have been “brutal,” said Penni L. Nelson, Dallas-based vice president of risk management at real estate developer Hillwood, a Perot company.

At its May 1 renewal, Hillwood, which has a commercial real estate portfolio of industrial, retail and multifamily properties, saw the number of insurers on its property program nearly double from 13 to 24, she said.

Rate increases were across the board and the program saw about a 50% rate hike overall versus a single-digit increase in the prior year, Ms. Nelson said.

Insurers increased deductibles and introduced percentage deductibles in Texas locations for hail and severe convective storm, while property valuations came under continued scrutiny, adding to costs, she said.

Cost of capacity

As the year goes on there is a finite amount of capacity available and businesses will have to make difficult decisions about how much limit they need to buy versus what they’d like to buy, while considering their lender requirements, said Jeff Buyze, Fort Lauderdale, Florida-based vice president, national property practice leader, at USI Insurance Services LLC.

“We started to see even in April some carriers were waiting for their (reinsurance) treaties to renew because they didn’t have any more wind capacity. They’re already tapped out,” he said.

For flood, tornado and hail-exposed accounts, the dynamic is the same, Mr. Buyze said. “People are having to buy less limit because it doesn’t make any sense from a budgetary standpoint or just isn’t available in the marketplace,” he said.

Insurers are wary of new risks with catastrophe exposures, said Peter Fallon, national property practice leader at brokerage Risk Strategies Co. Inc. in Boston.

A real estate account with a portfolio of high-rise office buildings and with New Orleans exposure, saw the named storm limit on its program cut from $500 million to $250 million at its recent renewal, Mr. Fallon said.

“In addition to the price going up, capacity is going down. The cost per million has gone up a lot greater than 50% just because the limits are half of what they were,” he said.

Hillwood buys around $500 million in property coverage on total insured values of $1 billion and did not reduce its limits, Ms. Nelson said.

“It's easy if you don’t have any loans to take some of this on the chin,” but Hillwood has loan covenants which makes it harder to reduce limits, she said.

Changing strategies

There’s been a shift in the way policyholders buy coverage, with some reducing limits from an all-risk or catastrophe perspective, self-insuring parts of the program to reduce or maintain costs, and taking higher retentions, Ms. Bettencourt said.

The use of captives and parametric coverages to finance property risks is accelerating, brokers say.

Demand for parametric coverages is growing as deductibles increase, said Mike Chapman, Charleston, South Carolina-based national director of commercial markets at Hub International Ltd.

For example, an auto dealership might take a percentage of its inventory as a deductible and that number is “probably double what it used to be for an attachment point,” he said.

“It’s almost impossible to get wind and hail coverage for open lots. If you don't buy a parametric product now you might not be able to get coverage for the open lot or for the auto inventory,” Mr. Chapman said.