In an effort to keep our clients informed on the status of the energy market, Energy Insurance & Bonds prepared this Commercial Property Outlook for 2020.
The property insurance market started to turn in 2019. Catastrophic losses in the energy sector in the past five years are causing almost all commercial property markets to raise their premiums substantially. Deductibles are also on the rise. This is to make up for past lost revenues for the last three years. The markets anticipate more losses for the year 2019. This is what is causing the significant increases in the property premiums in the energy sector.
The past decade brought us a buyer’s market for commercial property insurance. There were numerous markets willing to compete to write in the energy sector – including hydroelectric plants. Unfortunately, over these last few years, the markets had to make huge payouts because of claims in the energy sector. This is causing the market for energy risks to pull back or even stop writing energy altogether. The good news is, there are still markets willing to write energy risks, but they are trying to minimize the risk of future catastrophic losses.
We, at Energy Insurance and Bonds, have not seen losses from our clients in the energy sector that justify the higher premiums and higher deductibles. That being said, most major carriers have lost billions in the past five years due to natural disasters. It is plain and evident that these insurance markets intend to tighten their underwriting criteria in order to return to profitability. This is not good news for our hydro clients. It means, that for a while, property premiums will be more expensive and more difficult to secure. We do not know how long this trend of upward premiums for property insurance will last, but it’s not the first time we’ve seen this and the
market is sure to turn around sometime in the foreseeable future.
What we would advise our Hydro clients to do in the meantime is the following:
1) Make sure your property is valued at 100% replacement cost value.
2) Stay current on the hydroelectric power plants work for your inspections.
3) Get an engineering report before your renewal date. Insurance companies are now asking for these and they take time. Valuing your property correctly and having a current engineering survey is helpful when we need to look at the insurance markets that are still willing to provide competitive premium quotes.
4) Check your power purchase agreement to make sure you are getting what is required for property.
The situation will not last forever, but for the first seeable future we all will have to adjust our business plans taking into consideration the current commercial property insurance markets.
Please note – General Liability insurance premiums have remained the same. At this time we do not see any significant increases other than a possible 10% or so standard increase.
