Outlook

The reinsurance market stabilised in 2024 due to several factors, including significant growth in catastrophe bonds, which increased available capacity. This greater access to reinsurance capital enabled insurers to take on larger and more complex risks. Consequently, some insureds found it easier to secure cover. In addition, premiums softened in 2024. Risk management company Marsh said commercial property insurance rates fell by 4% in the third quarter of 2024. Although rates may continue to moderate in 2025, several challenges weigh on the market, particularly climate change. According to a report by the Copernicus Climate Change Service and the World Meteorological Organization, Europe is the fastest-warming continent, which could increase the frequency and severity of extreme weather events. As such, premiums could rise in 2025, especially for those located in natural disaster-prone areas.

Developments and Trends to Watch

• Severe weather events—Storm Henk battered Britain in January 2024, causing £150 million in insured losses, and similar events could impact the UK this year. The Met Office reported that UK winters will be between 1C and 4.5C warmer and 30% wetter by 2070, which could increase the likelihood of severe weather events. Organisations with robust property management and risk mitigation measures may be best positioned to navigate the commercial property insurance market in 2025
• Rising building costs—Although inflationary pressures have eased, the Building Cost Information Service predicts building costs will increase by 15% over the next five years. Factors influencing this statistic include the high cost of building materials and labour shortages. It was also found that the construction industry lacks project management and design skills. These factors could delay projects, impacting property repair and replacement-related claims.
• Underinsurance—46% of properties are underinsured, with an average insurance shortfall of approximately 40%. Such a deficit could leave businesses having to cover a significant portion of the costs to repair or rebuild their commercial properties in the event of a loss. Reviewing insurance-to-value calculations will be critical in 2025 to help avoid out-of-pocket expenses.
• Smart buildings—Organisations may increasingly adopt internet of things technology to automate and control building functions. For instance, smart thermostats and automated lighting controls are becoming standard in many commercial buildings. In 2025, the adoption of smart building technologies may accelerate further. Smart sensors may be installed to proactively detect water leaks or monitor temperature and humidity, helping building owners predict and prevent potential problems. Moreover, organisations may be able to use “smart” data to demonstrate compliance with safety regulations, which could lower premiums.

Tips for Insurance Buyers

• Adopt robust property management practices and immediately address building issues that could lead to losses and subsequent claims. Consider the merits of smart technologies to aid in loss control efforts.
• Proactively prepare for extreme weather events to reduce losses. Specifically, develop or review your business continuity plan to help your organisation remain operational and minimise damages in the event of an interruption
• Ensure accurate insurance-to-value calculations. From there, determine whether you need to adjust your organisation’s policy limits to avoid the perils of underinsurance
• Work with insurance professionals well in advance of your renewal date. Doing so will make sure your application has ample time to be adequately evaluated by underwriters