Best’s Commentary: Changing Weather Patterns, Climate Conditions Increase Challenges for Property (Re)Insurers in California

OLDWICK, N.J.--(BUSINESS WIRE)--
The latest winter storm affecting Southern California underscores the growing risk of financial volatility that weather-related losses pose for the insurance industry, according to a new AM Best commentary.

The Best’s Commentary, “Changing Weather Patterns, Climate Conditions Increase Challenges for Property (Re)Insurers in California,” states that the recent winter storm in California, the nation’s largest state by population and gross domestic product, is among the growing list of examples of how climate-related risks are changing the landscape for property insurers. The impacts of changing climate conditions and weather patterns could worsen if extreme events continue to occur with greater regularity, and insurance companies whose property portfolios are concentrated in the state will feel the effect the most. Natural catastrophes traditionally have posed the greatest threat to property insurers, but the frequency of these severe events, their varied nature and the resulting financial losses have become critical.

For California’s mountainous inland areas, the most-recent storm was primarily a snow event, as was the late December storm that caused flooding and mudslides in coastal regions. For those areas that were flooded just a couple of months ago, the spring snow melt could exacerbate problems. Illustrating the recent and volatile weather patterns in the state, these two events were preceded by persistent drought conditions. Moreover, population growth in catastrophe prone areas in California has led to significant economic and insured losses, despite less intense natural catastrophes.

“Flooding, snowstorm, mudslides and wildfire risks continue to worsen and could cause more reinsurance capacity to retreat from property risks and insurers will reassess their opinion of rate adequacy for their property insurance risks in the state,” said David Blades, associate director, industry research and analytics, AM Best. “Because secondary peril losses due to hail and shifting weather patterns continue to escalate, modeling and risk mitigation have never been more important.”

The commentary notes that pricing property risks based on prior experience can be particularly challenging because catastrophe models have not yet fully taken into account what is becoming a new normal. Other risks leading to losses include the potential for heightened business interruption following a severe weather event and agricultural losses because of droughts. As reinsurers increase rates, limit capacity and tighten terms and conditions, the challenge for primary property insurers in California, along with other states facing similar challenges, will only grow.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=329285.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2023 by AM Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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David Blades
Associate Director, Industry Research and Analytics

+1 908 439 2200, ext. 5422

[email protected]

Christopher Sharkey
Manager, Public Relations

+1 908 439 2200, ext. 5159

[email protected]

Sridhar Manyem

Senior Director, Industry Research and Analytics

+1 908 439 2200, ext. 5612

[email protected]

Al Slavin
Senior Public Relations Specialist

+1 908 439 2200, ext. 5098

[email protected]

Source: AM Best