The HUB Q&A: Blake Giannisis on the New World of Higher Property Valuations — and How to Avoid the Higher Insurance Premiums That Result

For business owners, finding affordable property insurance has become more complicated: Their properties may have been undervalued for years or decades. Underwriters, often seeing claims far exceed what the property is worth, are restricting coverage and adding requirements for current property valuations. Rates are rising even for properties with solid loss histories.

Blake Giannisis, MBA, ARM , HUB executive vice president and leader of HUB International’s North American Property Practice, discusses how taking control of property valuations can help business owners avoid unforeseen premium hikes and protect their critical assets.

Q: How have property valuations affected the insurance market?

Blake: There’s been a higher loss activity across all industries the last five years, and in many cases, the losses have exceeded the total declared or reported value for a particular location or exposure.

Inflation is also a culprit — that and supply chain issues have made it a lot more expensive to repair properties and equipment. The combination has inflated loss amounts well above what was expected or underwritten.

Q: What about rates?

Blake: Valuations rose across the board, but in some cases, there were drastic increases in reported values due to inflation. Underwriters experienced unpleasant surprises after a loss, and realized that they were undercharging for these exposures.

Add general rate increases of 10% to 20% on top of that, and even more for CAT exposures and properties with adverse loss experience, and it’s going to cause significantly higher property premiums. Even for those who didn’t have losses in the past.

Those trends have been a real eye-opener. Business owners realized they often needed higher coverage limits, in addition to the higher cost for expiring coverage.

Q: Are valuations stabilizing?

Blake: Yes, largely because the majority of business owners have increased their property valuations due to underwriters’ mandates and inflation has slowed. So instead of seeing a 10% to 20% inflationary trend factor applied to values, you’re at a starting point of 2% to 5%, with adjustments depending on the account.

Q: How can business owners stay on top of property valuation issues?

Blake: We emphasize most the need for an established valuation methodology that can be shared with the insurers. When they do occur, appraisals should be a replacement cost basis because that’s typically how an insurance policy is valued.

When we market submissions, having a write-up about the valuation methodology is now pretty much standard and gives the underwriter that extra layer of security and verification. It’s a good way to preemptively show the client is on top of their values.

Q: What can property owners do when a reappraisal leads to prohibitively expensive coverage, or even none at all?

Blake: Sometimes we have to take a “stair-step” approach in which clients and the markets work together to avoid a single year-over-year jump. So the business increases values 5% to 10% annually over two to three years, rather than raising them 30% in a single year, for example. But we’re hoping the drastic annual increases are behind us.

Beleaguered property owners can consider alternative risk options like captives, parametric insurance, structured solutions, integrated risk programs or even self-insurance. These are options worth considering if traditional insurance is too expensive, inefficient or unavailable.

Ready to learn more? Start a conversation in the comments below or contact HUB's Property Practice to help get valuations and premiums under control.