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Industry insiders have been watching the commercial real estate market with a mix of curiosity and cautious optimism.

Rising interest rates have helped slow demand for commercial properties. At the same time, many companies are continuing to operate with a hybrid work environment while office buildings across the country sit empty. The effects are trickling down to once-bustling downtown areas, which are seeing restaurants and retailers struggle due to the loss of foot traffic as employees continue to work from home.

“It’s going to be an interesting year,” says Brett Dailey, Executive Underwriting Director, Brokerage Primary Casualty at Nationwide. “It’s a transition year.”Despite these significant challenges, new opportunities are emerging. Some empty commercial properties are being converted to hotels, apartments, condos or mixed-use spaces in an attempt to find a profitable way to use this real estate.

“We’re seeing a kind of market wrangling in some areas,” Dailey says.

All of these factors—and more—are influencing the insurance industry. Here are three areas to watch in 2024.

Rising claims costs

Claims costs have been on the rise for years, and there’s no sign of a slowdown. A recent study by Swiss Re Institute found that liability claims costs in the U.S. have been increasing at a rate of 16 percent per year for the past five years.i

This steady climb is due to a number of factors, including social inflation and aggressive attorneys. The costs of claims has gone up, too, as inflation has brought up the prices of goods and services needed to make the insured whole from their loss.

“A slip and fall injury on a premise is routinely a $100,000 claim these days,” notes Dailey.

In turn, rising claims costs result in higher rates for insureds. Property owners pass the cost along to building tenants, and business owners make up for it by charging their customers more for their products and services. And so, the cycle of rising costs continues.

Assault and battery is leaving a mark

AH Analyticsii  recently reported that murder rates in the U.S. in 2023, on average, declined more than 12% over the prior year. However, this number is still above the data from 2019, and certain locations have experienced an increase in murder and other violent crimes over the past year. 

With this in mind, violent crime continues to be a real concern in many areas, and the impacts aren’t limited to its direct victims.

“We are seeing increased cost due to violence on premises,” explains Dailey. “If a violent crime happens on a real estate premises, sometimes through no fault of your own, you can get called in for claims, which can result in large verdicts.”

These claims—and the associated losses—can add up. Businesses and insurers, alike, sometimes retreat from crime-heavy areas because they simply can’t operate profitably in those locations.

To combat this challenge, insurers are looking to AI, third-party data and data analytics to help them evaluate risks more granularly. This is helping insurers gain the insights they need to make quicker underwriting decisions.

“Using technology in this way really supplements our traditional underwriting techniques,” Dailey says.

Rate capacity challenges

It’s a mixed bag out there, with some markets increasing to the point where some standard and mid-market carriers are coming back because the premium is there. However, it’s not that way everywhere.

“In areas where losses are trending up and rates continue to push, there’s concern about how much capacity insureds can take before they just can’t do it anymore,” says Dailey.

Businesses are bearing the brunt of rising rates over time.

“In South Carolina, some taverns and bars are shutting down because they can’t afford liquor coverages due to the uptick in losses,” he notes. “Businesses are closing because they can’t afford to insure themselves and stay compliant.”

As costs continue to go up, a question emerges about how much rate the market is able to withstand. Underwriters—and the data-rich tools at their disposal—will play an important role in balancing the right rate for the right risk.

Collaborating to move onward and upward

To help mitigate the risks these trends bring, insurers, wholesale agents and retail agents will need to collaborate to bring down costs.

“The process will take incredible dedication, but we need to get everyone together on the same page to mitigate losses,” Dailey insists.

Efforts span a wide range of areas. For example, they might include working with property owners to ensure they are maintaining lighting, landscaping and parking areas to make it safer for motorists and pedestrians on the premises, thereby preventing some losses. From another angle, larger and more sophisticated insureds may be willing to take on higher deductibles to keep rates down.

These and other small steps can add up to broader rate relief.

“We are here to partner with our insureds, our brokers and everyone on the value chain as we work to have better rates for everybody,” says Dailey. “At Nationwide, we bring a stable risk appetite to out brokers day in and out, so they know where we can be a solution for them for the long haul.”