Hardening property insurance market conditions mean brokers must start conversations early, endure longer renewal processes, and skillfully deliver potentially bad news to clients, according to Risk Placement Services’ 2023 U.S. Property Market Outlook.

Property insurers face reinsurance rate hikes between 30% and 80%, worsening and more frequent catastrophes, and inflated rebuilding costs.

They’ve responded by raising rates, reducing their appetite, and limiting capacity. Insureds in certain sectors are seeing premium rises north of 50%, while some carriers could reduce their capacity by as much as half this year, according to RPS experts.

“We’ve been in a hardening market for four or five years now but increases across 2023 are expected to come at an accelerated rate,” David Novak, RPS area president, said in the report. “This has been driven primarily by poor underwriting results, increased cost of reinsurance and shrinking of capital in the insurance marketplace.”

A deal that last year involved 10 carriers to cover a risk may now require 20 because of shrinking capacity, noted Nicholas Cavaness, RPS senior property broker. Many risks will become more expensive to cover as a result.

“A lot of this market has minimum premiums or minimum price per million, and when you add a number of new insurers to a policy, the prices can quickly add up,” he said. “Some insurers are also increasing their minimum premiums in order to reduce the number of submissions they are receiving, as they simply can’t cope with the increased submissions flowing through the market at the moment.”

The increasingly complex deals put a greater drain on resources at broking firms and extend timelines for completing deals.Agents and brokers should start renewal conversations “as early as possible,” said Wes Robinson, national property president at RPS.

Clients “need to be educated about the reasons for these increases, but most importantly, they need to be made aware of what to expect so they can plan accordingly,” Robinson said. “Bad news late is always worse than bad news early.”

Brokers need to move beyond a transactional role and be trusted partners to clients, according to RPS. That requires a knowledge of their market and an ability to explain why premiums are rising.

“You need to be able to give honest examples and case studies that bring the situation to life because it is then much easier to explain the state of the market and help them understand why everyone is facing these pressures,” said Christa Nadler, area executive vice president for property at RPS.

Middle market firms will also see higher rate increases than average, according to the report. Reduced market capacity has led to increased costs for managing general agents. Traditionally, MGAs have served middle markets well because they are able to write complex risks under one policy despite involving several capacity providers, making for an easier and cheaper approach for insureds. Middle-market companies may now have to choose between paying higher premiums on the open market or retaining more risk.

“The price of transferring risk now is so expensive that insureds are going to have to ask themselves how much risk they can tolerate holding on to their balance sheets,” said Robinson.