P/C market destabilizing in the wake of billion-dollar disasters, says panel

The U.S. property/casualty insurance market is destabilizing as the annual cost of weather events in the country now totals $200 billion. As a result, a large portion of the real estate asset class could be devalued, creating a number of challenges.

That was among the risks in the U.S. P/C market discussed in a recent webinar by The Conference Board.

The number of billion-dollar disasters in the U.S. has been increasing over the past decade and a half, with 2023 and 2024 setting records, said Erin McLaughlin, senior economic with The Conference Board. Convective storms – storms that carry heavy rain and high winds – made up the bulk of the disasters in 2023 and 2024, according to the National Oceanic and Atmospheric Administration.

NOAA also reported that tropical cyclones carried the highest price tags among weather disasters, with costs reaching the hundreds of millions in 2005, 2017 and 2024.

McLaughlin said that when looking at weather-related losses, only about 50% of the rebuilding cost is covered by insurance. “So much of rebuilding is infrastructure, which is a separate conversation but also a huge cost,” she said.

Residential insurance premium soaring

The cost of residential insurance premiums has increased 44% in the past six years, according to The Conference Board and the U.S. Bureau of Labor Statistics. During that time, premiums went up by108% in the 10 states with the highest number of natural disasters.

Amid this rapid escalation of costs, insurers are threatening to nonrenew coverage on homes as well as exiting entire regions altogether.

“If most property must be insured for it to hold its value and be marketable, yet insurance is so hard to get and so expensive, it essentially creates a huge systematic issue where we have a lot of property in the U.S. that won’t hold its value,” McLaughlin said.

Some choosing not to insure

She noted a percentage of homeowners who own their property outright are choosing not to insure.

The Federal Reserve’s Economic Well-Being of U.S. Households of 2024, revealed 7% of all homeowners in the survey of more than 12,000 respondents had no insurance.

When asked why they didn’t have homeowners insurance, 43% said they “couldn’t afford it”, while another 19% said “it is not worth the cost” and 7% said they were unable to obtain insurance.

P/C destabilization carries risks

Destabilization in the P/C market carries a number of risks for various stakeholders, The Conference Board said.

P/C insurers are at risk of financial losses due to intense and frequent natural disasters, along with inability to offer affordable products in many locations.

Homeowners are at risk from escalating costs, an inability to obtain insurance and the destruction of home values.

Commercial property owners are at risk from high insurance cost, vulnerability of their equipment and inventory, and a decline in property value.

Local governments are at risk from an inability to assist residents with disaster recovery and a decrease in property tax receipts if real estate declines in value. This could compromise funding of infrastructure and public schools.

One solution to soaring property insurance rates is to make structures more resilient to catastrophes such as flooding and wildfires, McLaughlin said.

Natural disasters and their impact on property insurance have become a problem in areas of the country that historically didn’t see catastrophes such as hurricanes in the past, said Alex Heil, senior economist with The Conference Board.

“It used to be that some of the interior states weren’t going to be affected by sea level rise, but we are now having rainfall rates rising in states away from the coasts - North Carolina for example. These states are experiencing rain events at rates not seen before.

“There is no corner to hide. It is a nationwide problem.”

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Susan Rupe is managing editor for InsuranceNewsNet. She formerly served as communications director for an insurance agents' association and was an award-winning newspaper reporter and editor. Contact her at [email protected].