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June 27, 2023

The hardest personal insurance market in a generation

Kim Connell and Robert Pritula

Major weather disasters, such as hurricanes, wildfires, floods, and tornados are happening progressively more across the United States including areas not typically impacted by these weather events. These weather trends, combined with inflation and other factors, have contributed to a significant and complex shift in the personal insurance marketplace.

How did we get here?

The insurance industry goes through soft and hard market cycles. During a soft market, underwriting is flexible, insurance coverage is readily available, and rates are stable. In a hard market, the opposite is true – it’s harder to get coverage and premiums increase. 

The current hard personal insurance market is a result of the increasing frequency and severity of storms and other extreme weather events across the United States over the past several years. This is compounded by inflation, rising prices from increased technology in autos and homes, and supply chain issues.  

Between 2017 and 2022, natural disasters caused global losses of at least $200 billion each year. The U.S. was impacted by Category 4 or 5 hurricanes making landfall each year except one, and eight of the top 10 most costly wildfires caused billions of dollars in damages to homes and property. On average, there were only 18 days between billion-dollar weather disasters, compared to 82 days in the 1980s.

Over the past 18-24 months, rising inflation and supply chain issues have increased the costs of claims for property and auto insurance in the U.S. Modern technology and features in homes and cars make it more expensive to repair, rebuild, or replace them when there is a loss. Plus, when there are large amounts of regional losses at once, it often results in a shortage of construction supplies as well as skilled labor. Costs are driven up, and homeowners may find that even their extended replacement cost provided by specialized insurers is still not enough.

With the addition of a number of unexpected events, such as the devastating Texas freeze in 2021, and two major storms in 2022 – Hurricanes Ian and Nicole, where both coasts of Florida took significant losses within seven weeks of each other and auto claims in particular skyrocketed – the insurance marketplace has become a particularly challenging environment.

How are insurers responding?

Many insurers are tightening their underwriting guidelines and taking additional steps to reduce losses. They are increasing premiums by as much as 40% to cover the growing demand for coverage and their own costs for claims. Some insurers are choosing not to renew policies for certain properties or implementing stricter guidelines for coverage. In California, several insurance carriers have stopped offering homeowners insurance altogether.

Adding another layer of complexity to this situation, reinsurance markets – which provide insurance to primary insurers to offset large claims – have been affected by global weather events such as the Australian floods and the winter storms in Europe. Global events tie up capital, which in turn affects the availability and cost of property coverages in the U.S.

What can policyholders and home buyers do?

As a homeowner, what should you expect when looking for new insurance coverage or renewing your policy?

Plan ahead for longer lead times and engage with your broker as early as possible. Because many carriers are limiting capacity, it may be harder to find coverage for your home. This is especially true if you live in an area prone to natural disasters since insurers are looking much more rigorously at homes in these areas. You may need more time to search for other coverage options, especially if you have more than one policy — home, auto, valuables, excess liability, etc. — with a specific insurer. Be on the lookout for renewal information from your broker and respond in a timely manner, particularly if there are changes that affect your coverage. Additionally, if you are purchasing a new home, explore your coverage options early. Prior coverage on a property does not mean it will be available for a new owner.

Take steps to meet additional risk mitigation requirements. Risk mitigation is crucial for properties located in disaster-prone areas. Properly mitigated properties will give clients the best opportunity to purchase broad insurance products and protect themselves from potential claims during a catastrophe. More insurers are requiring additional inspections and preventative safety measures, such as clearing brush further back on your property or adding central station alarms, water shut-off devices, and sprinkler systems. Be prepared to comply with these measures required by insurers and be proactive in mitigating risk to help increase the insurability of your property. 

Be open to new carrier options. If you are having a difficult time finding insurance coverage for your home, your broker may suggest an Excess & Surplus (E&S) carrier. E&S, or non-admitted, carriers do not file their rates with the states where they place policies. Because they may set their own pricing and terms, they are often more willing to consider high-risk properties. Placement in non-admitted markets is becoming a more common practice to give carriers flexibility in rate and form to offset higher loss risks. But it is important to discuss the financial stability of potential non-admitted carriers with your broker, as non-admitted carriers are not provided the same state financial guaranty as an admitted carrier, which may impact their ability to pay claims in the event of a financial insolvency.

Be prepared for an increase in premiums and changes in deductible structures. Almost across the board, homeowners are experiencing premium increases between 20-40% — or higher in catastrophe-prone areas — due to the combination of factors discussed above. Rising material costs and labor shortages have led to higher replacement cost valuations. Common loss events such as hail or wind events have led many carriers to alter their settlement practices based on the age and quality of roofs. In addition, insurance companies may be introducing limitations or special deductibles on certain types of losses that may not have been part of your policy before. For example, some Midwest locations now have hail and wind deductibles, coastal areas face higher hurricane deductibles, and certain western states have introduced wildfire deductibles.

Expert advice and advocacy

In challenging market times, it’s helpful to have a relationship with a personal risk advisor and broker who can provide guidance, expertise, and advocacy. Marsh McLennan Agency Private Client Services is continuously exploring new options and working on our clients’ behalf to help ensure they have access to the insurance solutions they need in this hard market. 

In addition to being prepared for what a changing market can bring, it’s critical to plan ahead for future natural disasters or weather events. Learn more about preparing for natural disasters or contact us to discuss your insurance options with a personal risk advisor.

For more information, please contact us for a personal risk review.