Today’s Commercial Property Market in ‘Better Place’ Brokers Assess 4 Current Trends: Vacancies, Alternatives, Valuations, Wildfires

Commercial property insurance rates continue to fall for most accounts after most property insurers saw profitable books in 2024. That’s good news for insureds, commercial property brokers say, as clients begin to see rate reductions at renewals for most non-cat-exposed accounts with minimal claims.

While the property market remains sensitive on what’s to come for the rest of 2025’s catastrophe loss events, increased capital flow into the property market has led to more competition. According to USI’s 2025 P&C Market Outlook published in January 2025, ‘shared/layered’ property placements are seeing average rate decreases at 5-15% or more, and top-tier accounts could see rate decreases of 10-20% at renewal.

There are a few areas within the commercial property world where brokers expect to continue to see challenging rate conditions and tougher underwriting this year, including vacant properties, wildfire-exposed properties, senior housing, affordable housing, wood-frame, and any accounts with a claims history. ‘These renewals continued to see pressure on rate and terms, with most of these risks being placed in the excess and surplus market, which saw property premiums increase 33% over the previous year,’ the USI report revealed.

But the dog days of hefty rate increases in commercial property insurance have mostly faded, brokers say.

‘What we’re starting to see now is the market definitely has softened, and we are seeing rate decreases, certainly more commonplace across the entire book,’ said Jeff Buyze, National Property Practice Leader at USI. Buyze said the rate decreases are more prominent in the ‘shared and layered space,’ which is an area of commercial property that also saw the largest increases during the hard market. ‘We’re starting to see a lot of that pricing come down, a lot more capacity that is out in the marketplace right now.’

Those accounts that are insured by a single insured carrier program are still seeing pressure on rate in the single digits, he said, but not at the same pace. ‘We are seeing some rate decreases there now too,’ he added. ‘Six months ago, we weren’t seeing a lot of that.’ The trend is good news for commercial property insureds, he said. ‘It’s welcomed greatly after what we dealt with the last five or six years.’

‘The property market right now is the best market from a client perspective that it’s been in the last seven years,’ said Michael Rouse, managing director, U.S. Property Practice Leader, Marsh. ‘There’s an oversupply of capacity resulting in a continued deterioration or reduction in pricing.’

Rouse said Marsh is seeing broader terms in property coverage, as well, driven by that oversupply trend in the market. ‘And while there’s been significant losses over the last 12 months – the market is healthy,’ he said.

‘Whether you’re buying coverage on vacant properties, operational properties, properties in Florida, properties in California, it’s a better place, a better market today than it has been in the last seven years.’

Insurance Journal asked a handful of property insurance specialists about four trends in the commercial property world in 2025: insuring vacant commercial buildings, growing concerns over wildfire risk to commercial properties, how valuation is impacting property insurance today, and alternative options to consider. Here’s what they had to say.

Large commercial property insurance buyers sought alternatives in the depths of the hard market deploying self-insured options such as higher retentions, forming captives, and buying parametric products.

While property insurance conditions have improved, there’s still a lot of interest in alternative risk strategies for clients looking to take more control over the traditional ‘ebbs and flows’ of the insurance market, USI’s Buyze said.

Marsh’s Rouse said commercial property clients are retaining more risk than ever before in the form of higher deductibles and alternative markets such as captives. ‘We do have clients that A, have captives today, B, are looking to form captives, or C, are looking for a large retention,’ he said.

Alternative risk options are not for everybody, Buyze added.

‘Typically, you have to retain, in most cases, at least $5 million as a deductible or as a layer before it starts to really pay for itself.’ He said there’s potential collateral issues to consider, as well. Insurance collateral requirements are a way to safeguard the insurer against additional risk.

Buyze agrees there was a lot of interest in alternative risk solutions during the depths of the hard market. ‘We saw a lot of interest because people just couldn’t afford to buy the insurance that they were being required to buy, whether it be for lenders or other stakeholders,’ he said. Even as the market softens, he expects the trend to continue. ‘We have clients today that they had surplus all along in their captive and maybe they weren’t using it.’ So, when the hard market came along, they were able to deploy their captive’s surplus to use it on their own program. ‘We saw a lot of that during the hard market.’

Whether that trend will continue is a ‘risk-reward decision’ for the insured, he added. If rates come down enough, then the question to ask is if it still makes sense to retain that same amount of risk in a captive or focus on another area, such as retaining ‘something on auto or another line of coverage.’

Another alternative market that saw growth and interest during the past several years in property coverage has been parametric products.

Carl Smith, national property practice leader, Risk Strategies, said parametric insurance has become a hot topic because there’s plenty of capacity in the market for those products. But there’s still a lot of unknowns when it comes to parametric insurance on the client side, he added. Insureds have questions about what alternatives to traditional insurance products really are. ‘They don’t really know what’s a captive, what’s a parametric product, and they’re asking those questions.’

Between rate increases and the industry’s focus on proper valuation, insureds have been hit really hard by the cost of property insurance, he explained. ‘You compound a rate increase with a values increase because values hadn’t really been heavily scrutinized for a while, and you can really end up with a really significant increase,’ he said. He noted the hard market has been a time to educate clients on what insurance is and what it is not, and how alternative property insurance products are materially different than conventional indemnity-based property insurance policies.

Parametric insurance is a highly customized product that meets only a very specific need, Smith said. ‘You can theoretically build a parametric product around an infinite number of scenarios,’ he said. ‘But what it is not is a way to beat the conventional property insurance market to secure cheaper catastrophe cover or whatever. Of course, you could have a physical loss at a site and not trigger your parametric.’

That’s a critical difference for insureds to understand, he added. Coverage relies solely on the trigger. ‘It’s all around the wind speed trigger, the hail size trigger, whatever the product is that you’re buying.’

Buyze added while there are some ‘really good products’ in the parametric insurance space, they don’t always make sense for some clients. ‘Some risks are very well suited for parametric, and others, it may not make a lot of sense,’ he said.

‘For instance, we have a lot of country clubs that might be exposed to wind. ‘ Tee-to-green coverage and things of that nature may be excluded or have a very, very small sublimit in their property policy,’ Buyze said. ‘So, having a parametric with a broader definition of what actually is a loss allows you to actually pay for things that are typically excluded in the property policy with a parametric product.’

But the important thing to consider is how the product is structured, he noted. ‘Is it a single peril? Is it multi-peril? What are you really trying to achieve? At what point do you want that policy to trigger? Setting up those triggers in the policy itself is very important whether it’s wind, flood, quake, a number of [different] perils.’

The combined effects of climate change and increased development in fire-prone areas are driving greater exposure to potential losses from wildfires. The wildland-urban interface (WUI)-areas where homes and businesses meet wildland vegetation-has also expanded. Losses from wildfires pose great risks to commercial properties at the same time businesses face operational risks such as damaged assets, supply chain disruptions, business interruption, and increased liability.

‘Wildfire exposure continues to complicate placements and cause concern for insurers,’ USI wrote in its January report. With insurers reducing capacity offered or refusing to write locations in high-risk wildfire areas, ‘insureds find themselves more reliant on the state-sponsored plans like the California FAIR Plan, the excess and surplus market, or wildfire parametric products.’

The USI report said that none of these alternatives come without risk, ‘including named peril coverage in programs like the FAIR Plan, premiums that could be multiples of the existing premium in the excess and surplus market, or problematic language within parametric policies that can exclude coverage for wildfires that start within the perimeter of the property.’

While the industry is advancing efforts to better predict wildfire risk through modeling tools, there can be serious discrepancies in the results or risk score, Buyze said. Brokers need to ‘dig deeper’ than the risk score or risk map detailing wildfire risk, he said.

‘The risk score itself is not enough,’ Buyze explained. ‘You have to look at, OK, how much defensible space do we have? What’s the precipitation in that area? Are they in a specific katabolic wind region? What are the previous burns? How far were the previous burns? All of those things,’ he said.

‘Unfortunately, some of the underwriters will decline risks right off the bat if the risk just hits a certain risk score,’ he said. ‘My recommendation and what we do here is use multiple systems. You have to dig into the data and really understand what’s happening on the ground there.’

Jeff Borre, U.S. Property Leader, Marsh Advisory, said ‘wildfire modeling is very young compared to the other [risk] models.’ That means it’s important to partner with advisors who can help when a risk score might show a discrepancy in real wildfire risk.

‘So, if you think about windstorms where we’ve been running that [modeling] for 20, 30 plus years, we’ve got great historical data,’ he said. Wildfire models are not yet there. ‘Wildfire models are more in their infancy,’ he said. ‘We’ve got these primary and secondary characteristics [for flood, wind risk] that can help us tell how buildings are going to respond,’ he said. But wildfire isn’t there yet. ‘Number one, because it’s young, and number two, because it’s a little less predictable because of the lack of some of that historic data.’

Marsh’s Rouse, agrees. ‘The tools and resources to help evaluate wildfire risk are still evolving,’ Rouse said. But at this point, he thinks the tools are mostly ‘undeveloped.’

‘I think when you get into those situations where you think you’ve got a discrepancy [in wildfire risk scoring], it’s important to partner with someone that can investigate that discrepancy,’ Borre added. ‘We’re not often giving credit for defensible spaces or positive roof construction or building materials that are going to help us in those risk situations. So, it’s important to engage with someone to make sure that we’re explaining that to the markets, making sure they understand that our clients are doing everything they can’ to mitigate the risk.

Vacant Commercial Property

National vacancy rates for office buildings hit a record 19.8% at the end of 2024, an increase over the previous 12 months, according to a U.S. office market report by Commercial Edge powered by Yardi, a technology and data firm for the commercial real estate world. Despite high-profile return-to-office mandates from major corporations, the report’s authors say they do not anticipate office vacancies to fall this year. Other reports predict the office vacancy rate to rise to 24% by early 2026.

USI’s Outlook report said: ‘While Class A office space remains in high demand in desirable locations with amenities, Class B and C offices have lower prospects of being repurposed. As these properties remain empty, insurers view them as higher risks due to potential losses from vandalism, leaking pipes, theft, glass breakage, and arson.’

USI’s Buyze said the most problematic issue with covering these vacant office buildings involves coverage restrictions and exclusions. It’s also important to know how an insurer defines vacancy. ‘What defines a vacant property in the policy form? Because you could pick up three different policies and all of them treat vacancy a different way,’ he said.

‘For those that do have vacant properties on their schedule, I think getting a copy of the specimen policy form that’s been quoted is absolutely essential to see how that’s treated, because each of these property policies handle it differently,’ Buyze said.

For example, ‘you could have a permission for vacancy for a certain number of days-30, 60, maybe 90 days. And then after that, you could start seeing exclusions in place for certain perils – things like vandalism, malicious mischief, water damage, theft of copper pipes, all of those things start to get loaded into the policy form.’

Beyond the policy’s possible exclusions, Buyze recommends reviewing protective safeguards and warranties for things such as maintaining heat in the building. ‘You could see maintenance for maintaining sprinkler systems, the alarm systems, and depending on the situation, that may not be possible for some insureds.’ That could present challenges for the insured. ‘My advice when dealing with vacant properties is definitely get a copy of the policy form and review it, ask questions, and confirm what’s actually being covered and what isn’t.’

After several years of inflation and cost increases, construction and equipment costs remained relatively stable in 2024, Marsh said in a February Property Valuation US Market Update. ‘While carrier challenges to reported property values have not disappeared, the nominal rate of cost increase has certainly been welcomed during renewals and is expected to continue.’

‘The most critical thing you need to understand, or anyone needs to understand, is what is the exposure, and that all starts with the values,’ Marsh’s Rouse said.

‘It’s the property values from a building perspective, content, what’s in the building, and then obviously from a revenue business interruption standpoint. For us, we think that that process is incredibly important for our clients and for us to provide our clients with the right advice to make buying decisions,’ he said.

‘If my values are 40% undervalued and I’m buying to an output based on a vendor model for named windstorm or earthquake and so on, well, if my values are 40% off then my P&L is probably going to be 40% off just using very simple easy math,’ he explained. ‘So, there’s a high probability I’d be under-buying an appropriate level of insurance. … It’s all about making the right risk decisions, and it’s so critical that our clients have a good handle with respects to their valuation to be able to make those risk decisions.’

From a valuation standpoint, insurers were ‘super focused’ on valuation from 2021 to 2024, Rouse said. ‘If a client didn’t have an appropriate explanation for what their values are with a lot of detail, oftentimes we’d see coverage limiting language,’ he said. ‘But in general, the market and clients have done a really good job in recent years to address appropriate valuation.’

But Rouse cautions that a valuation is only as good as the time it’s been completed. Other factors that may come into play when it comes to valuation in 2025 could include the potential impact that tariffs will have on materials such as steel and lumber, he added.

Derek Hall, president of Intact Insurance’s U.S. Specialty Property group, said that as an excess property insurance underwriter, valuation is top of mind.

‘The industry has made a lot of adjustments over the last few years, but chronic undervaluation has always been a concern, and as an excess market, it’s something that’s always been at the forefront of our minds,’ Hall said. That’s because excess property underwriters are potentially risking a couple hundred million dollars on excess limits.

Intact Insurance Specialty Solutions offers up to $250 million in capacity for excess property placements, for example. The coverage is designed for a broad range of commercial properties requiring substantial limits beyond traditional primary layers.

Hall said a primary commercial property market might be on the hook for $5 million. But an excess property market has much more to lose if valuations are not proper.

‘So, the primary’s concern is legitimate, but not as legitimate as ours because we have much more at stake,’ he said. ‘Valuation is certainly something that we always take into consideration.’