In a Chicago meeting in November, Dan Reynolds, the editor in chief of Risk & Insurance, caught up with Joffre Mishall, head of large property, U.S. National Accounts, for Zurich North America. The content of their discussion has been edited for length and clarity.

Risk & Insurance: Joffre, thanks for taking time to meet with us. What risks or specific pain points are your large property clients facing in the current market environment?

Joffre Mishall: We are coming out of what many call a hard market, which lasted for an unprecedented five years. That long period of significant rate increases resulted from the industry realizing that premiums weren’t even covering attritional losses, especially in the large space, let alone large or catastrophic losses. This meant insurers were losing money for two to five years.

A rate correction, or what I call a “corrective market,” was necessary to make it viable to pay losses and still make a small profit. Usually, these hard markets last 12 to 18 months.

This year, we saw rate increases moderate a bit, in part because the 2023 and 2022 hurricane seasons were milder than many years. Interestingly, this year, the two major U.S. hurricanes were near misses in one sense, as they didn’t hit major metropolitan areas. So they shouldn’t affect the market too much.

R&I: How are risk managers navigating the challenges of the transitional market, given the recent hard market conditions?

JM: The toughest challenge for risk managers over the past few years has been requesting additional funds from their CFOs [chief financial officers], who may be questioning the frequency of these requests. Several factors have contributed to this situation.

Initially, it was about correcting prices. Then, reinsurers stepped in a year or two later, demanding their own price corrections, which further impacted pricing. Subsequently, we started experiencing large losses, and upon analyzing them, we discovered that the reported values were significantly lower than the actual losses.

This discrepancy can be attributed to the COVID period when everyone was in emergency mode. The focus was on maintaining insurance coverage rather than updating values. It took another year to a year and a half to realign the values.

The combination of rate increases and higher values prolonged what many viewed as hard market conditions. However, the values are now in a good place, and the rates remain attractive, making it an appealing market. As a result, we are witnessing aggressive growth in property insurance capacity in the current market.

R&I: Are property owners in the large commercial space generally more sophisticated and knowledgeable customers when it comes to valuations and risk engineering?

JM: Absolutely. In the large commercial space, you’re typically dealing with highly experienced and professional risk managers. They’ve been through the process before and know what to expect.

Many of them have run several lines of business, so they have a deep understanding of the intricacies involved. Some even have dedicated property and casualty experts on their team to ensure they’re covering all their bases.

Overall, property owners in this segment are very well-informed and savvy when it comes to valuations and risk engineering.

R&I: Under these conditions, how can your business unit differentiate itself from others in the insurance industry?

JM: Our primary focus is on providing value to our customers. We believe we offer a highly reputable policy in the industry with excellent claim service. Additionally, we provide risk engineering services to help customers identify risks and exposures, and then we offer customizable solutions or mitigation strategies for those exposures.

Our approach, in part, is to work with customers to help them improve their risk profile, which sometimes enables them to retain more of their risk. By doing so, they can have greater control over their insurance spend and feel confident in their coverage for emergency situations or tough circumstances.

R&I: Are insureds more willing to take on additional risk in the current market conditions?

JM: Yes, in this market, insureds are willing to take on more risk. When rates were increasing significantly for five years, many realized they had to. Paying the elevated market rates with low retentions was not sustainable for many of them.

More insureds are now heeding the risk engineering recommendations they’ve likely been hearing for a while. They understand that they need to start investing in these recommendations to improve their risk profile.

R&I: What can we expect from the insurance markets in 2025 and beyond, considering the near misses from major storms this year?

JM: Last year, we witnessed what I call “climate change perils.” We’ve always had severe convective storms that bring hail, tornadoes, and surface water flooding, but never at this frequency and severity. We’re now telling our customers that these events are more prevalent than ever before.

While we still need to be concerned about critical wind on the coasts, earthquakes in California and other places, and 100-year or 500-year floods, we must also look deeper into these evolving climate change perils due to their increased severity and frequency. As long as the waters in the Atlantic or Pacific remain warm, we’ll continue to see this storm activity.

It’s no longer just “Tornado Alley”; it’s a “Tornado Highway” that extends throughout the Midwest and mid-South. When I overlay all the hot zones for wind, quakes, floods, and even wildfires, suddenly the entire United States becomes a red hot zone because of the higher severe convective storm frequency and severity.

R&I: What impact are warmer climates having on storm activity and how is Zurich North America helping customers navigate these risks?

JM: The weather is going to be the weather, and unfortunately, we’re seeing warmer climates, which are kicking off more storm activity. For us, it’s about helping our customers figure out the best locations for their operations.

If they’re going to build something new or make an acquisition, we help them understand what exposures those decisions will bring outside of just the revenue stream. We also have to consider the impact of ESG (environmental, social, and governmental) factors. People want to do the right thing and make improvements, but we always caution them to contact their insurance company first.

Some improvements, like installing solar panels, can inadvertently create new hazards. While solar panels can be great for the environment and can reduce energy bills, they can also create a fire hazard on the roof that didn’t exist before. This can lead to higher insurance premiums due to the added exposure.

We want our customers to be making ESG improvements, but we want them to make those changes and at the same time manage the risk, and we can help them with that. Let us help you do the right thing, but you’ve got to do it the right way so you don’t accidentally have an exposure that all of a sudden will throw your insurance program off-kilter.

R&I: What are some of the emerging risks that are catching the insurance industry by surprise?

JM: One risk that has been sneaking up on us in recent years is winter storms. The Texas freeze in 2021, called Uri, caused huge havoc because people weren’t prepared for it. The infrastructure was not set up to handle such extreme conditions. This event took a lot of our insureds by surprise and resulted in extensive damage. It was one of our big loss leaders at the time.

In December 2022, we had winter storm Elliott, which affected the northern regions like Pennsylvania, Ohio, and New York. While they’re accustomed to cold weather, the severity of this storm was unprecedented.

We’re seeing these events occur more frequently and with greater intensity; already this year, early December is bringing impactful snow storms across the Great Lakes region. Climate risk is a constantly changing area that we must stay on top of and warn our insureds about potential exposures. Our role is to help them prepare for these risks and offer solutions to mitigate the impact.

R&I: By contrast, this fall, we had a severe drought in the Northeast, including the brushfires in New Jersey and New York. What should we make of this?

JM: The severe drought in the Northeast, including the brushfires in New Jersey and New York, was  indeed a concerning development. As an insurance company, we closely monitor these situations and their potential impact on our policyholders and business operations in the affected regions.

Droughts and brushfires can lead to significant property damage and pose risks to public safety. We stand ready to support our customers who may be affected by evolving events, providing timely assistance and resources to help them navigate challenges they may face.

Drought has two primary effects on the environment. First, it leads to a higher frequency of wildfires due to the dry conditions. Second, the ground hardens as a result of the lack of moisture.

When rain finally does occur, the hardened ground doesn’t absorb the water effectively. Instead, the water collects and rolls across the surface. This can lead to major surface water flooding, even in areas that are not typically considered flood zones.

R&I: What other changes have you identified in recent years that are impacting property risks, and how should insurers be thinking about these changes?

JM: One significant change we’ve identified is that cars are no longer primarily made of steel. Modern vehicles, including electric vehicles (EVs), contain a significant amount of plastic, which is a highly flammable material. When these cars are parked in garages, they pose a much greater fire risk compared to older vehicles.

Plastic burns much hotter and more severely than steel. If a plastic fuel tank is involved, it can release gas and ignite other cars nearby. We’re finding that sprinkler systems in parking garages, which were previously considered sufficient, may no longer be adequate due to the changes in vehicle composition.

These hot fires can compromise the concrete structure of the garage. If the garage is attached to or located underneath a building, it poses a significant exposure to the building itself. We’re advising our customers to reassess their fire protection measures, such as by installing additional sprinkler systems, in light of these changes.

Furthermore, the increasing prevalence of EVs with lithium batteries presents another challenge. Lithium batteries, when damaged or defective, have the potential to spontaneously combust, and when they do, they create an intense fire that cannot be easily extinguished with water alone. These fires can burn for an extended period, exacerbating the risk to the surrounding structure.

R&I: What risk mitigation developments are you seeing that others should be keeping an eye on?

JM: Our insureds are becoming increasingly proactive in seeking mitigation solutions, especially those who face unique challenges.

Looking at hurricane risk, a large hospital in Tampa, located close to the water, recognized the potential impact of storm surges on their operations. They reached out to FEMA (the Federal Emergency Management Agency) and explored various mitigation options, ultimately settling on a vendor that could install a temporary barrier when needed to help keep potential storm surges out. Before Hurricane Helene made landfall, they installed L-shaped walls designed to stop and hold water in place, with the weight of the water actually strengthening the barrier as levels rise. This proactive approach allowed the hospital to operate at full capacity throughout the storm.

Our engineering team works closely with clients to assess the viability of such solutions, helping them find ways to protect their assets when relocation isn’t an option. It’s encouraging to see our customers taking these steps to mitigate risk and maintain continuity in the face of adversity.

We view this as a tremendous success story. They thoroughly analyzed their exposure, proactively sought outside help, and implemented a solution before a significant event took place.

When the major event occurred, the solution worked effectively. It’s a prime example of the power of proactive risk management and the positive impact it can have on mitigating potential losses. &