Inflation Is Kicking Property Valuations in the Teeth. Better Make Sure Your E&S Coverage Has Enough Bite

By: | January 10, 2023

Boyd Robinson is a director for the excess & surplus contract/property & casualty portfolio and underwriting (PUO) team at Nationwide. His primary responsibility is overseeing the property book of business. Prior to joining the PUO team, he was an E&S P&C underwriter and territory manager. He has been with Nationwide for over 19 years. Robinson received his bachelor’s degree in political science from the University of Arizona and his MBA from the University of Phoenix. He holds both the ASLI and AU designations.

As inflation hovers near 40-year highs, the cost of just about everything is going up.

The issue of inflation isn’t just impacting what you pay at the pump and in the grocery store. Its effects are far-reaching, and that includes property, construction materials and all points in between. Factor in the ongoing supply chain issues that emerged in full force during the pandemic and a tight labor market, and it’s no wonder that industries far and wide are feeling pinched.

Inflation, labor issues and other pressures are definitely impacting the E&S market. Here’s a look at what we can expect.

Soaring Property Costs Leave a Mark

Despite the pandemic, property costs continued to boom across the country. While the hot real estate market has benefited savvy sellers, it has also created challenges with property valuations and the insurance policies that are based on them.

For example, the building value on a policy issued yesterday may not be sufficient in the event of a loss today or tomorrow. When this happens, insureds can find themselves in the unfortunate position of being underinsured.

In the end, this increases the possibility that a claim may be reduced based on the amount an insured is underinsured on a policy, potentially impacting an insured’s ability to get back to normal after an incident that results in a claim. For all these reasons, it’s critical for the insured, general agents and the insurer to get being insured to value right.

Mounting Material Expenses Further Complicate Matters

On top of rising property values, the cost of building materials is also on the rise. This can have a broad ripple effect that impacts a number of parties.

It’s important to understand that the cost of building materials not only impacts the value of a property, but it also contributes to the overall cost increase in settling claims.

This means that it costs more to get an insured indemnified. In turn, this results in policy limits that can only go so far to restore the insured in the event of a claim.

On top of that, shortages and delays in obtaining supplies means it is also taking longer to get insureds back into their properties after a claims event.

Together, these factors are putting additional stress on our book in terms of pricing and rate adequacy.

The Importance of Insuring to Value

These and other factors are making it difficult to know how to value risks properly.

On top of these specific market challenges, inflation continues to rear its ugly head and acts as a compounding force on all these items.

When inflation does ultimately recede, it will also take time for its impact to diminish, which further intensifies these issues. With so many variables in play, it’s important that insurers have a trusted partner on their side as they make decisions about their coverage.

The partner’s expertise guides insureds through the process of making sure their property is being correctly insured to value — which yields many benefits.

First, it ensures that the insurer is getting adequate premium for the risks being assumed, which in turn helps ensure that the carrier can meet policy obligations and do right by insureds should a claim occur.

In addition, this effort reduces the risk of the insured being underinsured in the event of a loss. This also puts general agents in a stronger position with their retail agents and helps avoid unnecessary litigation over perceived valuation shortages.

Taking these precautionary measures in the current economic climate allows E&S to be a viable long-term market that can maintain a steady course, despite the choppy seas around us. &

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