Forces Impacting the Commercial Property Insurance Landscape

Hurricanes, floods, wildfires, tornadoes and severe convective storms continue to have a significant impact on the United States. According to the Insurance Information Institute, insured losses in the U.S. from weather-related catastrophes reached $112.5 billion in 2024.¹

While reinsurance capacity improved and stabilized through 2024 and into the first quarter of 2025, the market remains sensitive to catastrophe trends and financial volatility.² Although property reinsurance pricing appears to be softening slightly for some segments, the underlying costs associated with major loss events and economic factors continue to influence the premiums insurers must charge.

Rising construction costs remain a significant challenge in accurately determining property replacement costs.³ It’s crucial that properties are insured to their current replacement value. After years of increased material and labor costs, many properties may still be insured below their actual replacement value. Policyholders who have achieved valuation adequacy can expect renewal value increases in line with U.S. construction inflation rates. However, those who have not kept up with increased costs may face larger increases needed to bridge the gap.

The cost to rebuild remains elevated, impacting the amount of coverage needed. While the rate of increase for some construction materials has slowed in 2024, cumulative increases over the past several years are substantial, with overall material costs across market sectors nearly 40% higher than pre-2020 levels.⁴ Supply chain issues, though improved, still present challenges compared to previous levels.

Finding skilled labor continues to be a challenge for the construction sector, affecting rebuilding timelines and costs. A significant percentage of contractors report difficulty hiring qualified workers.⁵ These labor shortages can lead to longer rebuilding times after a loss, potentially increasing business interruption losses. This issue is especially pronounced following a catastrophe, when labor shortages are exacerbated.

While the market is becoming more balanced, it continues to reflect underlying risks and loss trends - reminding businesses to stay focused on proactive risk management and adequate valuations.