The U.S. property/casualty insurance market is experiencing the hardest insurance market cycle in a generation, resulting in many insurance agents and brokers, as well as drivers, homeowners and business owners needing to adjust to current market conditions that are characterized by rising premiums, tighter coverage terms, and reduced capacity for insurance.
In the aftermath of record losses and rising costs in recent years, over a dozen insurers have become insolvent in coastal regions while others have made difficult decisions to reduce their exposure by curtailing new business in catastrophe-prone regions.
Compounding market pressure in some states, there have been legislative and regulatory changes that introduced higher costs and volatility that makes modeling and, in turn, pricing catastrophic risk more challenging. The result is some insurers and reinsurers are more hesitant to deploy capital in some states due to the uncertainty of expected losses, or in some cases, the inability to charge adequate premiums.
Some industry critics have falsely implied insurers are reaping excess profits. However, anyone looking at the actual insurance industry performance numbers would be hard pressed not to recognize the significant losses in recent years. Between 2020-2022 the U.S. experienced the costliest three-year period ever for insured natural disaster losses, with the homeowners’ line climbing above a combined ratio of 100 for five out of the most recent six years. A significant cost driver affecting the industry is the rapid onset of inflation, which accelerated to a 41-year high in 2022.
Insurance claims inflation has risen even faster, contributing to significant underwriting losses, as the costs and time frames needed to rebuild and replace contents have surged. For example, since the start of the COVID-19 pandemic the price of single-family residential home construction materials has shot up 34%, while labor climbed 27%, as of December 2022.
This has resulted in much higher loss costs, and underinsurance challenges for consumers. As insurers face higher costs for reinsurance and other forms of capital to help spread catastrophic risk, insurers are diligently working to manage costs and ensure they can fulfill all obligations for the risks they do take on. In states facing the most significant pressure, the non-admitted market and residual market plans may continue to serve as a relief valve for the admitted market.
The resulting impact on agents and brokers has been significant, as more time and effort are needed to help consumers adjust or identify new coverage to meet their needs. This is the time for agents and brokers to emphasize good communication and develop better relationships with their customers. Insurers understand such market dynamics present significant challenges for agents and brokers.
Where do we go from here?
To address the rising costs and risks communities face, we must focus on the underlying issues. A key long-term strategy is mitigation, which for wildfire regions includes reducing excess fuel loads in wildland urban interface (WUI) regions; re-examining land use policies in high-risk regions, which includes adoption and enforcement of building codes and defensible space standards; and strengthening existing homes and businesses to become more resilient to wildfires.
APCIA supports the Insurance Institute for Business & Home Safety (IBHS), which launched the first ever research-based wildfire mitigation standard in 2022. Introduced initially in California, IBHS’s new Wildfire Prepared Home program provides homeowners with critical steps they should take to protect their homes from wildfires. APCIA is working closely with IBHS to expand this program into additional western states, such as Oregon and Colorado. We are further working at the federal level to steer more resources to support states in mitigation efforts. For example, APCIA’s president and CEO, David Sampson, currently serves on a federal wildland fire commission focused on ways to mitigate and manage wildfire losses.
To address the current hard market challenges, it is imperative that lawmakers and regulators strike a healthier balance between affordability for consumers and ensuring that companies have the tools necessary to manage rapidly evolving risk and costs. APCIA is working to educate policymakers on this to ensure any new legislation or regulations do not introduce new or higher exposure and costs, which may exacerbate current market conditions for consumers.
Topics Pricing Trends Market
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