The State of the Insurance Market for West Coast Property

The West Coast has its unique challenges like earthquakes and wildfires. These factors make for a property market that is diverse and ever-changing. In this episode, we check in with two CRC property specialists who have a lot of experience dealing with West Coast property. How tough are rates and capacity? How long will the challenging market last? Are there any signs of easing? Featuring two members of CRC’s Property Practice that writes over $3 billion in property premium annually: Jim Sipich is a broker from the CRC San Francisco office. Jonathan White is a broker from the CRC’s Bothell office.

The following is a transcript from the episode:
The West Coast has its own unique challenges when it comes to property insurance. You've got earthquakes, wildfires, and the beautiful state of Hawaii. All of these different factors make for a property market that is diverse and ever-changing. So we're going to dedicate an entire episode to the state of the market for West Coast property. We'll check in with two CRC specialists who have a lot of experience in dealing with West Coast property. Jim Sipich is from the CRC San Francisco office. And Jonathan White is from CRC Bothell. They are both members of CRC his property practice that writes over $3 billion in property premium annually. It's the West Coast state of the market property addition. Next Monday is the placing you first podcast. I'm Dan Wentz. And this podcast features news and insights from CRC's vast knowledge base of 2000 plus associates who write in excess of $10 billion of premium annually, and we're giving you insider access to what's happening in our company and the types of insurance we place. This is the placing you first podcast.

Jim, if you could you start us off with kind of a general state of the market for what you're seeing as far as the West Coast? goes when it comes to property? 

Jim Sipich  1:15  
Sure, it's, you know, easy to say that the property market is generally it is it's tough, it's a tough marketplace. We all know that. But there are so many different variables involved. And it's really helpful to look at the different things are there different perils, there are different occupancies and different regions like we're talking about? Today, actually, we'll touch on all those things. But clients are seeing so many different outcomes, certainly common threads, underwriters are just overwhelmed with the amount of submissions with the amount of workload in this market, they all have less capacity to offer, and they're all under a lot more scrutiny to use it, there are a lot more levels of review that they need to get through. It's just a lot of pressure. And certainly, there's actually less pressure for them to grow top line to davant. Right business. So these are all things that we're dealing with, in two different degrees, you know it, if we, if and when we come out of this, our mark, of course, will come out of it. But when we come out of this hard market, we're gonna see those same underwriters focusing on some of these different things at a different pace, you know, certain perils will be

will be better than other certain classes of business are going to remain difficult. As CRC goes, we were in a great position, CRC brokers are, are really good at working internally to help us we got great data analytics that are helping us to understand these market changes. But in any case, thank you for for having us. West Coast, we're here to talk about nothing is more difficult on the West Coast than wildfire. 

Dan Wentz  2:56  
Oh, yeah. And that's a that's a good segue to our next point, wildfire. Jonathan, what do you think as far as wildfires going there's been a lot of talk California, obviously a hot spot for wildfires. What's that looking like right now? 

Jonathan White  3:10  
Absolutely. I'd say all western states, really, we're seeing a lot of business being non renewed out of the standard marketplace. And it's really because of price exposure and wildfire exposure. macarius. Typically, they'll underwrite based on just manual underwriting, or they'll run it through a third party vendor will there develop a wildfire score. And that score can range anywhere between five and 100. And once you kind of get into the 1680 range, which is your moderate to high hazard wildfire, you see more and more carriers not willing to offer coverage. If that's happening, you probably have a handful, maybe two handfuls of carriers are willing to consider the risk. And they're putting upwards of one to two and a half million of capacity up and to fill out a 10 mil line, you're looking at four carriers. So rates can really deviate a lot from $1 rate to $4 rate, which is you know, the highest rates I've ever seen. I'm sure GMOs as well. And in addition, it really depends on the limits the loss history and the values of the, you know, the exposure. And I'd also add that deductibles vary widely for wildfire. exposures, they can be a large flat deductible, and that can apply to all perils, or they can do a split the deductible. So your standard Alp perils have a traditional 10 or $25,000 deductible, but your wildfire is going to have more cat component to it, where it's going to be a large flat dollar or percentage deductible much like earthquake or wind, where the carrier is trying to distance themselves or buffer themselves from any kind of smoke damage, indirect losses, Ingress, egress, things like that. So wildfire is tough right now. 

Dan Wentz  4:42  
And Jim, did you have anything to add on that one or no? 

Jim Sipich  4:44  
Well, I think I know I make the mistake of calling it California wildfires, certainly a West Coast issue. Now a lot of business that you know three years ago was definitely in the standard market. It's builder's risk and wineries and hospitality hotels.

homeowners associations, whatever the case and at this point, it's in the E ns world. And there's really no end in sight. I don't see that going any. Any other direction.

Dan Wentz  5:11  
Okay, so earthquake, di C. That's another hot topic out on the west coast. Jonathan, what do you what's going on with with EQ right now?

Jonathan White  5:22  
Absolutely. We're seeing admitted and not admitted carriers retrenched in the marketplace. So it's really a mixed bag, you're seeing some risks continue to firm and have, you know, difficult time with rates and terms or conditions and other ones are actually seeing softening in the marketplace where they're actually seeing approved terms at renewal. You know, Long gone are the days of just, you know, flat renewals or grandfathering. In rates or terms and conditions, you know, things are being underwritten based on current guidelines. With that said, underwriters are taking a firmer stance on various attributes about an account, whether it's the year builds or seismic retrofitting insurance to value soil, deductibles, high damage building on the stock. And also, I'd say parking, you know, parking has also been it's hard to find placements for carriers are willing are, carriers are willing to consider sob story or tuck under parking. As far as limits, we have to kind of take a step back and remind ourselves that an earthquake carrier is much like a wind carrier, right, where they're going to have a cap on their exposure in a certain region, because then taxing the entire region. So once they reach that cap, or look to push down that cap, that's going to impact individual placements. And they're going to reduce their lines or their capacity on each individual deal, or they might even not renew a placement to kind of improve their portfolio impact. And the last component really on the quake, is the pricing, you know, are they getting an adequate rate or premium for their capital deployment on any risk? And any risk is going to be re underwritten based on again, current guidelines.

Jim Sipich  6:54  
Yeah, I guess we see markets within markets in the DC world, too. I I feel like generally that it's not as hard of a market, as we see in a lot of other areas that that specific peril. It certainly has its challenges, and there's places where there are cutbacks, and there's types of business. But generally speaking, I feel like there's still capacity out there for for di C. And

that helps. Now,

Dan Wentz  7:18  
it's a great place to visit Hawaii. But it's it's had a tough year out there. Jim, how is how is Hawaii going right now, as far as what you're seeing? You know,

Jim Sipich  7:29  
it is unique. And it seems like Hawaii has been in the news a lot EOB lava flows and near misses for hurricanes and tsunami alerts and, and everything else. But again, similarly, it may feel like a tough market in the islands. But relatively speaking, probably not so bad. Our clients, they have a there's still a robust, admitted standard marketplace that absorbs a lot of the commercial property risks there. And yeah, those markets are are getting some increases, you know that 1010 20% increase whatever the case might be, but relative to the E and s marketplace, and their view of Hawaii, it's it's it's they have a pretty good any Ian s underwriter of coastal hurricane business, you know, be it the Gulf Coast or Florida, they're going to tell you that Hawaii rates are way too cheap. And we see that all the time. And that's the that's the challenge, I guess is your good with your Hawaii risk. As long as you have that standard market once it comes out, you know, easily what what one carrier might have put up 100 million on one policy, you know, competitive deductibles. Single blanket limit now becomes a placement in the DNS world that takes seven eight carriers to get it together. And you know, easily double the rates. And that's a tough pill to swallow. So as long as you can maintain your standard market placement, you're in great shape. And that's different than then a similar risk in say in Houston or in Florida.

Dan Wentz  9:19  
And moving on to builders risk. 

Jonathan White  9:22  
Now we're definitely seeing an increased submission flow for CAD exposed masonry projects. So once with combustible roofs, renovations, a lot of similar projects we're seeing and then DSC on CSCs. If you're really you're big on acronyms, you but what we typically write though, are frame projects, and we're seeing more and more of those. So the admitted marketplace at one point was doing upwards of 15 million on any given project, but now they're probably closer to 25 million. And anything over 25 million is coming to the DNS marketplace. You know, the biggest reason for those is twofold is one is loss history. There's been losses throughout the country, but In the Pacific Northwest last year, there's at least three losses in the Seattle area range between five and $30 million. And then in q1 of 2021, there's actually another loss that happened in South Seattle. A couple that with civil unrest that occurred in 2020, carriers have actually issued moratoriums. And you know, larger global carriers are not writing in key metropolitan areas on the West Coast still, including areas of Portland and Seattle and the Bay Area. So with that said, some some carriers have actually lifted their moratoriums, and they're jumping through kind of the next hoop is the crime score, you know, if it's suitable credit score, they'll consider it. But if it's not, then they'll just decline the risk. You know, with that said, You're seeing more and more carriers on a risk, their quota shares are layered, and more information is needed up front. Historically, you can get by with just like an application or a timeline, or sitemap, you need more information for risk management, the aspect of it with water damage, and how it works permits and you actually need a copy of the security proposal from the third party vendor. And again, historically, carriers would only require that a project be fence lit and locked. But now you mentally need essentially monitored camera system that includes infrared, you know, two way talk and direct local access to the fire departments and police departments. And on those bigger projects, or ones in the higher crime score, you're actually seeing requirements for officers off our security or increased bedsides, which just drastically increase the price of the security for the insured to the last thing with the builder's risk really extensions, you know, there are a couple of carriers that actually exit the marketplace in the last couple months. And those carriers wrote policies a year or two years ago, since COVID has happened, there's been a need for more extensions. And what we have to do is backfill that capacity and place a new placement for that kind of vacated capacity. The other option is to roll off to a kind of Kwazii vacant policy. So lots of different options going on,

Dan Wentz  12:07  
and gym, manufacturing and processing. It's another key part of property, what uh, what's going on there.

Jim Sipich  12:16  
Yeah, Dan, not not so much a West Coast issue, so to speak. But definitely something where we're seeing a lot of activity. Definitely a tough one of the tougher classes that we're, we're managing it started three years ago for this, we saw admitted carriers pulling back in that class, dealing with limits. And in terms of hundreds of millions. Now we're dealing with carriers that are offering limits in terms of five or five or 10, if we're lucky, similar to what I was talking about with I Hawaii, you know, once you pull that risk out of out of a book, big blanket limit program, it's tough to get that capacity together, we're seeing insured buying smaller loss limits, maybe not even enough to cover their largest values exposed in any single building, simply because there isn't enough capacity out there to get to get it done. Again, we're still managing those renewables here three years later, as as capacity exits the market and, and comes back new capacity comes in, it's still really hard to find that those limits necessary. And similarly, we're not really seeing an end in sight to this to hard market in this this class of business. There's a few glimmers in terms of smaller companies, smaller amounts of capacity being offered. But it's limited, for sure.

Dan Wentz  13:44  
So overall, it sounds like you know, rates going up capacity is hard to come by. The art market is here. Maybe it's going away soon. Who knows? I mean, right. I have that. All right, guys.

Jim Sipich  13:59  
Got it.

Jonathan White  14:00  
You got it. Yeah. Yeah,

Dan Wentz  14:02  
there you go. That's, that could have been the whole podcast right? continues. But seriously, I mean, it's it's I mean, we've got some hope now. Right. I mean, everybody's getting vaccinated. COVID is hopefully on its way out. So in the future, maybe things will improve a little bit, maybe the situation, what suggestions or what advice do you have, like, what key takeaways do you have for our agents who are trying to navigate this tough property market right now?

Jonathan White  14:31  
No, as Jim kind of mentioned, yeah, there's carriers are inundated with submissions so they can be more selective. In addition, they have a more vertical underwriting process. So they're more eyes on any risk with that said, Get out early. You know, be prepared have full information loss history, applications, engineering reports. And what we'd like to talk about on our team is what what is our Why, why are you seeing this admission? Why is it moving to the top of the stack and why should you look at it so really Trying to tell the story about why the carrier should make this priority. It started early,

Jim Sipich  15:05  
you know, and it makes sure that your brokers are just engaging. A lot of help because, you know, across the country we're seeing a lot of different activity, a lot of different responses on different risks and it helps to, to be communicative internally here.