How to Succeed in a Challenging Reinsurance Market

Today’s reinsurance market is riddled with unexpected pitfalls, putting unprepared organizations at risk for significant loss. This shift was spawned by a combination of factors, including an uptick in catastrophic weather events, changes to the way reinsurance carriers manage their portfolios, worldwide inflation, and economic fluctuations.

Fortunately, wise risk pool members and other organizations can successfully lock-in thorough reinsurance coverage and improve risk mitigation. All it takes is the right expertise with the right planning.

First, let’s talk about what led to that market.

Why today’s reinsurance market is so challenging

1. Wildfires and windstorms and floods — oh my!

According to the Q1 2023 State of the Market report published by specialty insurance distributor Amwins, the reinsurance market has hardened, propelled by increasingly frequent catastrophic weather events across the United States and the damage those events have caused.

Over the past few years, adverse weather events have included earthquakes, major hurricanes, rampant wildfires, severe convective storms, and flooding. The NOAA National Centers for Environmental Information (NCEI) reported that in 2022 alone, the U.S. experienced 18 weather and climate disasters costing at least one billion dollars in damage a piece. With 2022 marking the eighth consecutive year where 10 or more separate billion-dollar disaster events impacted the U.S., reinsurance carriers have taken a hit. This has led them to restructure the way they do business.

To remain profitable, carriers have raised deductibles and offer less capacity than they did in previous years. With catastrophic weather on the rise, many reinsurers are seeking to diversify their portfolios geographically, reducing the number of properties they reinsure in higher-risk zones, in favor of property in other more stable regions.

2. Worldwide inflation and economic uncertainty

Beginning with the global pandemic in 2019 and exacerbated by the war in Ukraine, supply chain problems and shaky financial and economic markets have affected the reinsurance market, as well. Rising costs and inflation have increased the cost of construction materials and construction itself. Project completion has grown more difficult due to a shortage of skilled workers across the construction industry. All this has affected reinsurance rates and property valuations, requiring organizations with large property portfolios to make significant adjustments to their replacement costs.

Yet many organizations have failed to make these adjustments. This issue is so widespread, in the Amwins study, carriers indicate clients’ insurance to value (ITV) is now off, on average, by 30% or more! Reinsurers say they plan to address this discrepancy during renewals. Entities who haven’t adjusted the valuations on their property schedules can expect to see either large rate increases or “no bid” situations, where their submissions simply aren’t prioritized for renewal.

Fortunately, wise risk pool members and other organizations can successfully lock-in thorough reinsurance coverage and improve risk mitigation. All it takes is the right expertise with the right planning.

And that’s where the right risk management software can be a game-changer. A strong risk management tool serves as a single repository, uniting the data systems of risk management’s key functions for greater accessibility, more automation, and more rigorous analysis. It transforms the fine details into holistic, actionable information you can use reduce — and even avoid — risk. And it helps you track and streamline processes with easier follow-up and new accountability.

How to COPE and succeed in today’s reinsurance market

No organization wants to be left behind by their reinsurers. But you can gain reinsurers’ favorable attention – and help avoid significantly increased rates – in two ways, and they work hand-in-hand. One is by getting current property valuations from a reputable property appraisal firm. The other is by ensuring that firm collects the COPE data and the catastrophe (CAT) modeling data that reinsurers need to make an accurate assessment of your property’s risk.

The “C.O.P.E.” in COPE data is an acronym for Construction, Occupancy, Protection and Exposure. With the increased possibility of property being hit with a severe weather-related risk event, it’s become more important to have the property details on hand that COPE includes. Some of the most important COPE data points can be broken down as follow:

  • Construction: For each structure, make sure you have the correct ISO construction class, square footage, building age, any remodeling information, and the details on your HVAC mechanicals.
  • Occupancy: It’s particularly important to know the type of operation the building is used for. For instance, if it’s a storage building, does it house concrete blocks or fireworks? Your risk levels vary widely depending on the answer, and that affects how much insurance you need!
  • Protection: Don’t forget to include information on the presence and type of fire alarms, smoke detectors, sprinklers, and any monitoring systems. You’ll want to document the distance to the closest fire hydrant, and the building’s public protection class, too.
  • Exposure: Knowing each structure’s location and climate risk is important. Is it in a flood zone? Is there seismic activity? Is it in close proximity to other high-risk property? All that can affect your property’s risk exposure and how a reinsurance carrier might view the property.

Gathering this data helps property valuation companies form a more accurate picture of your organization’s property portfolio. It allows them to adjust more confidently for market trends and provide you with replacement cost values that are in-line with what’s happening today.

How catastrophe modeling enhances reinsurer confidence

Property insurance appraisals that provide detailed building information and accurate valuation data help secure the right insurance coverage for your organization. In addition, having access to detailed information about the properties on your Statement of Values can help you better manage risk.

Accurate, detailed property information supports informed decision making, provides proof-of-loss documentation, gives you more insight into your risk exposures, enables you to develop risk mitigation strategies, and can help speed up processes like insurance renewals and claims.

In addition to COPE data, depending on your property’s location, you may need to include catastrophe or “CAT” modeling data in the property schedule you provide to your reinsurer. CAT modeling determines potential risk to a location with predictive modeling based on years of weather data for that area. It’s particularly relevant for hurricane, seismic and flood zones, where this data has been tracked over centuries. It leverages information on the risk events that have affected an area historically and then analyzes the probability that a risk event happens again, throughout a specified number of years in the future.

By adding both COPE and CAT data to your arsenal of property-related data collection, you build trust with reinsurers, and that can lead to better ratings, better rates, and consistent, complete protection for your portfolio.

How Centurisk solutions can support your success

At Centurisk, we partner with your organization to ensure thorough, accurate property valuations, collecting the data that reinsurers rely on. Our valuation experts follow Uniform Standards of Professional Appraisal Practice (USPAP) guidelines. We go on-site to verify square footage and document the COPE and ISO construction details that affect replacement costs. We even take photographs of your property, so you can refer to them as time passes. At the end of the project, you receive a certified report of the results. This complete and professional evaluation helps you earn the confidence of reinsurance carriers and increase your success in this challenging reinsurance market. We also leverage our knowledge of current market trends to help you trend values forward based on an algorithm of various industry factors.

To learn more about how Centurisk can guide you during this tumultuous reinsurance market, and help make your organization’s risk mitigation a continued success, contact us today. We’re happy to help!

Want to a demo of Centurisk’s property risk management software? Simply fill out the form below and a member of our team will be in touch!

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