U.S. homeowners insurance carriers will report an underwriting loss for the sixth time in seven years in 2023 as natural catastrophe loss claims exceed historical norms, according to a recently released report by Fitch Ratings. Furthermore, there have been ongoing challenges in “projecting loss costs and insuring to value amid higher inflation and economic uncertainty.”
From a Claims Perspective
The report intends to highlight the “deterioration in homeowners results in 2023 and the market responses that should foster improvement in 2024,” according to James B. Auden, managing director, North American Insurance, Fitch Ratings. However, from a claims perspective, he tells CLM, “Economic volatility, inflation effects on costs of replacing and repairing properties, and supply chain and labor shortages continue to create challenges, but may have moderately stabilized recently. Greater predictability in claims leads to greater predictability in future pricing.”
Impact of Economic Inflation and Natural Catastrophes
According to the report, “Economic inflation has moderated, but insurers continue to face loss-cost uncertainty from cost volatility and lack of availability of key building materials and components and skilled labor, as well as higher reinsurance costs.” Furthermore, “Amid potential for more frequent large convective storm events, underwriters are more diligently managing risk concentrations and aggregations across all geographic regions. A greater proliferation of secondary peril events, including ice and hail related losses, is leading to changes in the risk assessment and provision of coverage for roofs within the homeowners policy.”
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Auden tells CLM, “Greater frequency of large convective storm events in 2023 add challenges to claims professionals in that a large volume of claims may materialize across multiple regions and at any time of the year.” Indeed, according to the report, insured catastrophe losses for 2023 “remained substantial despite a lack of major hurricane losses, according to Gallagher Re’s recent ‘Natural Catastrophe and Climate Report: 2023.’ Instead, industry losses were largely attributable to record severe convective storm losses totaling $59.7 billion, including 24 events that generated $1 billion or higher of losses.”
As a result, “The lack of a major singular loss event leads to a higher proportion of losses retained by primary insurers versus reinsurers, resulting in significant losses for a number of regional and mutual insurers,” according to the report.
CLM member Jordan Tenley, attorney, McAngus Goudelock & Courie Law, discussing the challenges in the property market, says, “It is undoubtedly true that the unpredictability of weather patterns and inflation have given risen to an increase in combined ratios for many, if not all insurers who write property policies. While there are avenues to address these factors, including the development and use of AI [artificial intelligence] to assist with actuarial modeling and underwriting-department needs, there are other factors that the insurance industry as a whole can focus on to prevent further deterioration of the property space. Those may include lobbying state legislatures to impose stricter standards on public adjusters to curb bad actors from unnecessarily inflating claims, forcing increasingly unfavorable appraisals, and taking advantage of insureds/consumers.
“In addition,” Tenley continues, “while the industry is cognizant and largely proactive in addressing predatory, storm chasing roofing and contractor claims, it may be beneficial for carriers to set aside their competitive advantage concerns from time to time to collaborate on and develop further measures to protect insureds/consumers as well as the carriers’ profit margins from being taken advantage of.”
Homeowners Insurance Performance
Summarizing the performance of homeowners insurers, the Fitch report states, “Homeowners’ 2023 GAAP segment performance for seven publicly held insurers reveals 14% growth in net written premiums in aggregate and a seven-point combined ratio (CR) increase to 105.7. Results for this group are influenced heavily by the shift in performance for The Allstate Corporation, the second largest U.S. homeowners’ writer, to a sizeable segment underwriting loss of 107 CR in 2023.”
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Furthermore, “Variability in results due to differences in catastrophe related incurred losses is highlighted by The Hanover Insurance Group reporting an estimated 132 homeowners 2023 CR, while The Progressive Corporation moved to a below-100 CR in 2023 due in part to fewer Florida insured losses.”
All in all, the property & casualty industry is anticipated to post deterioration in homeowners’ statutory underwriting performance for the year, Fitch says, with a segment CR projected at 109 in 2023 versus 104.4 in 2022.
On a brighter note, the report states, “Premium revenue growth tied to recent substantial price increases and more diligent underwriting to manage risk concentrations and aggregations point to improvement in 2024 underlying segment results. However, carriers may continue to struggle to generate underwriting gains depending on catastrophe experience, and results will vary considerably.”