Property underwriters must look beyond physical footprint: Gallagher Re

Business dependencies and operational differences are often underestimated when assessing property portfolios in the US, says Gallagher Re’S Joe Jackson.

Key points:
Disruption risks can spread
Operations shape loss profiles
Softer market widens choices

The North America commercial property map looks materially different from a decade ago. Investment in advanced manufacturing and data centres has drawn substantial insured values into storm-exposed corridors across Texas and the Midwest, where severe convective storms now bear a heavy share of market losses. 

But evaluating that exposure requires underwriters to look well beyond site coordinates on a peril map. Joe Jackson, executive vice president and head of large account commercial property, North America, Gallagher Re, explains that modern facilities do not operate in isolation; they depend on shared grids and suppliers where damage at a single site could disrupt an entire region.

“Traditional catastrophe models estimate losses from physical events, but don’t necessarily capture dependencies connecting businesses and infrastructure across different locations,” Jackson told APCIA Today. “Consider a manufacturer dependent on a critical supplier or a data centre reliant on shared power infrastructure. Damage at one location can interrupt operations across multiple businesses, potentially creating insured losses beyond the original event footprint.”

Site-level catastrophe models leave those operational interconnections unaccounted for. Underwriters must also separate underlying weather trends from the volume of value entering storm-exposed regions. Capturing those dependencies requires combining hazard analysis with practical insights into how businesses operate and where exposures intersect.

Gallagher Re pairs meteorologists with peril specialists to evaluate catastrophe models against historical loss data, distinguishing hazard shifts from exposure growth to guide risk-transfer advice, Jackson explained. Through its Digital Risk Practice, the broker coordinates expertise across cyber, AI liability and data centres, developing analytics to identify overlapping exposures across regional infrastructure.

“Two large manufacturing portfolios can look similar on paper, with comparable insured values and broad occupancy classifications, yet have materially different loss profiles.”

“We’re developing an accumulation tool to identify overlapping exposures across portfolios at the facility, campus and geographic level,” Jackson said.

Beneath the portfolio 

External dependencies are only part of the problem. High-level portfolio summaries routinely flatten critical operational distinctions between businesses that share the same broad industry code and comparable insured values, masking the true drivers of loss severity and volatility.

“Two large manufacturing portfolios can look similar on paper, with comparable insured values and broad occupancy classifications, yet have materially different loss profiles,” Jackson said. “Well-protected precision assembly can present very different fire, explosion and business interruption exposures from hazardous industrial processes involving specialised equipment.”

To get past broad occupancy codes, Gallagher Re evaluates individual engineering standards, occupancies, specific risk characteristics and historical loss records to understand the underlying drivers of severity and volatility. Taking that granular evidence to reinsurers gives primary carriers a credible basis to negotiate risk assessment and price.

“We’ve found when we can substantiate a more representative view of a client’s risk with credible science, loss experience and underwriting information, reinsurers are much more willing to reconsider how they evaluate that portfolio,” Jackson said.

Reinsurance flexibility

In many segments, property reinsurance pricing has softened faster than direct primary rates. While Jackson viewed pricing as adequate across both markets, the widening differential makes reinsurance capital increasingly attractive to primary carriers seeking to optimise risk transfer.

Abundant capacity has accelerated that shift. Capital from insurance-linked securities is now competing alongside traditional reinsurers across catastrophe layers, making markets noticeably more receptive to structural flexibility. Reinsurers are increasingly open to negotiating lower attachment points, aggregate protection and covers for subsequent events.

“We’ve had considerable success changing those conversations and delivering better financial outcomes for clients,” Jackson said.

Yet that flexibility does not make restructuring the right move, he stressed. Treaty design must align with a carrier’s capital position, rating agency goals and growth targets; for some, taking the rate savings and banking the cash remains the smarter commercial choice.

“Structural flexibility doesn’t automatically mean changing the programme is the right answer,” he said. “The decision also depends on the client’s financial and capital position, growth plans and rating agency objectives. For some insurers, simply taking the savings makes the most sense. For others, changing the structure or transferring additional volatility may create greater value. We need to prove which approach is right.”

“The objective isn’t to change a reinsurance programme for the sake of it,” he concluded. “It’s to differentiate the portfolio, identify the most efficient capital to support it and improve the client’s overall financial outcome.”

For more news from the American Property Casualty Insurance Association (APCIA) click here.

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