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Three reasons to be optimistic about commercial lines in 2021

It's no secret that the data looked gloomy in 2020. But several bright spots suggest that for many commercial lines, there's no reason to bring a negative attitude into 2021.

Construction spending up

In 2021, commercial lines growth should focus on residential building construction and specialty trade contractor risks. This year, Verisk expects construction premiums to expand 10 percent, up from 3.8 percent in 2020. Residential premiums are also expected to grow 10.8 percent after gaining 5.9 percent in 2020, and the specialty trades gaining 10 percent following 3.2 percent premium growth in 2020. While it's true many accounts were lost to the pandemic, the increase in construction and residential premiums present significant upside and are potentially a vital source for recovery this year.

  • Residential construction expanded over 21 percent year over year (as of January 2021).
  • Non-residential construction spending slipped nearly 5 percent in the same period.

We expect both to pick up this year, though the commercial construction sector faces extreme negative pressure, especially in the hospitality industry, which can anticipate the most pain.

This bodes well for commercial insurers seeking to expand in construction, where costs are up, and other industries are poised to lead the recovery.

New business formation

While the numbers of restaurant and hospitality sector accounts will not likely return to pre-pandemic levels before 2023, other sectors, particularly construction, will likely lead the way out of the pandemic.

Although rates for many commercial lines increased across all major coverage lines in 2020, most commercial insurers could not escape the pandemic's impact.

The bright side? The outlook for many commercial lines is expected to improve throughout the year, barring yet another surge of COVID infections stemming from more infectious variants. Indicators are positive for improved job prospects, incomes, consumer spending, and business investment. Historically low vacancy and interest rates, residential price appreciation, and pandemic-altered work arrangements sweeten the pot, as this is expected to drive residential construction and attract new capital and commercial lines accounts.

If businesses with employees form at anywhere near the levels suggested by this formation data, many commercial insurers likely have a fantastic opportunity to build back their books in 2021 and 2022 - even after the overall significant losses of accounts in 2020.

Low home vacancy rates

As alluded to above, residential vacancy rates in the fourth quarter of 2020 fell to multi-decade lows, both for single (1-4 unit) family and multifamily properties – a sharp distinction from the housing bubble in the early 2000s.

Several factors have caused prices to rise much more rapidly than rents over most of the last decade.

  • Employment growth in construction lagged far behind U.S. employment growth for more than a decade.
  • Due to persistently low interest rates, and pandemic-driven work from anywhere (at least for some), house prices have been growing more rapidly than owner-equivalent rents.
  • The combination of low interest rates and remote work is likely to continue to fuel residential building in the early 2020s. Residential construction is expected to continue even as housing prices increase.

To learn more, read Verisk's latest MarketStance® piece, "A Building Boost: Construction Premiums Expected to Rise 10% in 2021."

Eric Price-Glynn

Eric Price-Glynn is senior principal and head of the MarketStance division. He can be reached at

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