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Viewpoint: Property market takes hits

leaving California sign

Recent decisions by major homeowners insurers to exit California’s property insurance market are concerning as millions across the U.S. continue to feel the brunt of extreme weather and natural catastrophes, including convective storms, dangerous levels of heat, tornadoes and wildfires. As State Farm and Allstate recently announced they would stop issuing new home insurance policies in the Golden State, citing catastrophe exposures, inflation and higher construction costs, the reverberations are being felt in many parts of the country. 

Just last month, I received mail from my homeowners insurer informing me of “important information” about my property insurance premiums. The upshot is that the insurer, like many others, has filed a request for a 35% rate increase on its property insurance product with New Jersey’s insurance regulator. Under the proposed filing, the average homeowners policy will see a rate change of 36.3%. While it’s not yet clear whether the increase will be approved and how it will affect my renewal, what is clear is that the wider property insurance market is at a crossroads.

For storm-hit states like Florida and Louisiana, the exits and rate increases by insurers are all too familiar. The impact of major hurricanes through the years has resulted in heavy insured losses in both commercial and personal lines insurance markets. While coverage in catastrophe-prone areas can still be found, it’s at a much different price point and with more restrictive terms and conditions. Swiss Re issued a report last month in which it openly acknowledged that U.S. property/casualty insurers are responding to higher inflation and natural catastrophe losses with rate increases when possible and exits when not. The focus may be on homeowners, but underwriting actions are extending to other lines, including commercial property, Swiss Re said.

Meanwhile, brokers report that rate increases, which commercial property owners have been dealing with for at least five years, accelerated in the first half of this year. Buyers are understandably frustrated, and some are reducing their limits and buying less coverage. The move to retain more risk is not for everyone, but long-recognized alternatives to the traditional market, including captives and parametrics, are becoming mainstream and seem set to play an even larger role in the evolving property market.

Property premium in captives has increased rapidly in recent years, and parametric coverages for various catastrophe exposures, including wildfire and flood, are said to be seeing significantly greater uptake. As we report here, the increased demand for parametrics is not just a response to accelerating prices, declining capacity and rising retentions in traditional property markets. Improved data is enabling parametric coverages to be structured more effectively with triggers that are better designed for organizations facing complex weather risks, which means buyers have more confidence in them.

While property markets could soften if this year’s hurricane season proves benign, and some stability could return, what may not return quite as quickly is the premium that has left the traditional market. Creative ways to self-insure higher deductibles and retentions — and to plug gaps in programs — along with improved data and analytics are providing more options for organizations. Barring a significant fall in property insurance premiums, they will remain a mainstay of hard and soft markets.