Overarching Market Trends
Personal insurance rates have been on the rise for years due to a number of factors—primarily the increase in natural disaster-related losses, increased costs for auto losses, and “nuclear” liability verdicts, combined with state-specific regulations affecting carriers’ profitability and their ability to adequately price risk. Current loss ratios are nearly 110% for personal lines,1 which means that insurance companies are paying out 10% more in losses than they are collecting in premium.
As a result, policyholders have been experiencing incredible homeowners rate increases ranging from 20% on the low end to as much as 70 - 100+% or more for high-risk properties. Although auto rates had not been on the rise as much as homeowners policies, they are now trending upward for 2024 and policyholders are likely to see rate increases.2
Another critical effect impacting homeowners has been the capacity shortage resulting from many carriers limiting their new policy issuance or pulling out of high-risk states all together. The lack of coverage availability combined with higher rates have put homeowners in a pinch. Many have been taking on more risk in order to reduce their costs. In fact, our 2023 Private Client Insurance Benchmarking Study found that 1 in 4 homeowners moved to a policy with limited coverage and 1 in 5 decided to forgo insurance in some areas due to these unfavorable market factors.
In 2024, the hard market effects are expected to remain with elevated rates in property lines and additional rate increases in auto and in excess liability/casualty coverage. However, some states have recently passed new legislation that will ease pressure on carriers and allow them to reprice risks and hopefully open up capacity. This may set a precedent for other states that may lead to market softening late in the year and into 2025.
Record breaking natural disasters continue to cause complications
Since 2017, the U.S. has been experiencing increases in severe weather events and natural disasters. In fact, a record number of 28 billion-dollar disasters impacted the U.S. in 2023 with a large uptick in damaging convective storms across the central states. While the number of events increased, the overall insured cost of damage was $95 billion, less than the $125 billion of 2022.3
Of note, more than $50 billion of this was due to severe convective storms, which bring hail and tornadoes and are becoming more frequent and costly.
Reinsurance rates becoming more balanced
The average personal lines policyholder isn’t likely to be paying attention to reinsurance rates, even though they are a big factor in policy premiums. Reinsurance is basically insurance for insurers, and carriers factor those costs into their policy prices as well. In 2023, reinsurance rates in North America were up 40-60%.
Guy Carpenter, global reinsurer and sister company to Marsh, has indicated that conditions are more balanced for January 1, 2024, renewals with some restored capacity and more consistency in underwriting.4 This notable shift is promising for the insurance market overall.
Regional Outlook
Western U.S.
Insurance capacity in California continues to be extremely limited. Several mass market carriers are still not writing new home policies in the state of California, and others are writing only select homes and a specific number each month. Many of the carriers that are offering coverage are requiring additional documentation for home policies and have new waiting periods before auto coverage is effective.
We continue to see clients who have taken steps to mitigate property risks and harden their home to loss are more likely to find coverage. Taking proactive protective measures can make one home more insurable than another even if it is right next door.
The California Department of Insurance (DOI) has implemented changes that they are hoping will influence homeowners’ options. While we may continue to see rate increases, additional flexibility from the DOI may entice carriers to come back into the market or attract new options that will increase the availability of coverage for homeowners. This is still in the early stages, however, and we are unlikely to see any effects until the end of the year.
Florida
The risk of flooding across the state of Florida continues to be a primary exposure for homeowners of both coastal and inland properties. Coastal properties are at extreme risk of flooding due to rising water in a storm surge, and inland properties can easily flood due to excessive rainfall – both were a factor in the large number of losses caused by Hurricane Ian in 2022. Since then, automobile underwriting has become much tighter because of the large number of vehicles affected by flooding during the storm. While the living area in many Florida homes is elevated, the garages often remain on a lower level, which is at higher risk of flooding. As a result, sometimes carriers are declining to add high valued vehicles to an auto policy.
Despite the arrival of some new carriers in Florida, owners of high-value homes continue to face the challenge of limited capacity. The state DOI has made some recent regulatory changes that affect the deductibles carriers can apply to policies, which means that carriers will continue to look to policyholders to assume more of the risk. This along with other regulatory changes may entice more carriers to add capacity, which will create more options for homeowners over time.
Tips for Policyholders
In the hard market, families should keep in mind the following tips:
Take steps to mitigate risks to your property. Hardening your home to avoid risks will also make it more attractive to carriers who have limited capacity to write new coverage. Some effective risk mitigation steps to proactively protect your home may include:
Protect your home from fire, theft, and water damage with security systems
Clear brush around homes
Add ember-resistant vents
Install hurricane shutters, impact-resistant glass, or other wind mitigation devices
Maintain, upgrade, or replace your roof
Install water shut-off valves or monitoring devices
Replace inferior hoses inside the home
Install flood venting where appropriate
Purchase flood insurance to protect your home. Flooding continues to be one of the most common sources of loss across the country.
Be sure to pay your premiums on time. Don’t put yourself in a vulnerable position to lose coverage or give the carrier reason to cancel your policy. You may not be able to get it back. Habitual late payments may also effect your premium.
Don’t assume your current carrier will insure a new property. If you are thinking about buying property, engage an insurance broker early to make sure you can obtain insurance at terms that are acceptable to you. Except for some flood policies, a new homeowner cannot assume the policy of the prior owner.
Be open to alternative carrier options. Depending on standard coverage availability, your broker may suggest a “non-admitted” or excess & surplus (E&S) lines carrier that may have more flexibility to write coverage for high-value and high-risk homes. E&S carriers can sometimes offer more customizable coverage for clients, based on the unique characteristics of their homes.
Ask questions. Work with a broker who will help you understand the coverages you need and decisions you are making. Individuals and families who are the beneficiaries of education and advice, and who take action to mitigate risk, achieve better outcomes than their peers.
For more information, please contact us for a personal risk review.
