P/C insurers face hardest market in a generation

CHICAGO – As property & casualty insurers grapple with ongoing severe inflation, escalating claims costs coupled with record natural disaster losses and skyrocketing capital costs, a new white paper, Hard Market Cycle Arrives: Inflation, Natural Disasters, and More Straining Property Insurance Markets by the American Property Casualty Insurance Association (APCIA) and University of South Carolina Associate Professor Robert Hartwig, PhD, CPCU, examines the top inflation trends, natural disaster losses and financial impacts resulting in significant pressure for property insurers, reinsurers, and consumers.

“The U.S. property casualty insurance industry is facing significant pressure from rising economic inflation, legal system abuse, supply chain constraints, increasing catastrophic weather driving up losses, and historic cost increases for reinsurance and other forms of capital,” said Karen Collins, APCIA vice president, property and environmental.  “The combined effects are resulting in the hardest market cycle in a generation.  Commercial and personal property lines customers, particularly those in high-risk regions, may feel the effects of recent, elevated cost trends.”

Inflation and Financial Results:

• The price of single-family residential home construction materials have climbed 33.9 percent since the start of the pandemic, while trade services are up 27 percent.
• 2022 was the eighth year in a row the U.S. suffered at least 10 catastrophes causing over a billion dollars in losses.
• 2022 combined ratio for U.S. homeowners line is estimated to reach 107.9 precent, as insurers paid out more money to cover losses and expenses than they collected in premiums.
• M. Best noted personal lines (auto and homeowners) incurred an estimated underwriting loss of $34.9 billion in 2022, nearly tripling the prior-year level and driving an industry five-year high underwriting loss.
• The U.S. property casualty insurance industry’s policyholder surplus fell 9.4 percent in 2022, according to A.M. Best, and is likely to be the largest drop since early 2009, according to S&P.
• Reinsurance broker Guy Carpenter estimates that property-catastrophe reinsurance prices rose 30.1 percent in 2023, following a 14.8 percent increase in 2022.

“This unusual combination of challenges has created a perfect storm resulting in a significant deterioration in personal lines loss results in 2022, according to Fitch and S&P Global Market Intelligence,” said Collins. “The growth of population, housing, and businesses in hazard-prone areas are exacerbating the effects of climate change, leading to more frequent and severe catastrophe losses.  The higher costs of capital and reduced reinsurance capacity are further exerting upward pressure on insurance rates and may result in stricter underwriting in catastrophe-exposed markets.”

“We must work together to mitigate homes and properties to bend down the loss curve,” said Collins.  “The insurance industry is encouraging homeowners, renters, and businesses to mitigate potential losses by hardening homes, communities, and businesses.  Mitigation is the key to easing the pressure on costs for everyone.”

Mitigation & Financial Preparation Tips:

• Harden homes and businesses by upgrading disaster resilient building materials.
• In wildfire-prone regions, create an ember-resistant zone by keeping the roof and five feet around the structure free of combustible materials, such as bark, debris, plants, or wood.
• Install home safety devices that leverage smart technology to help predict and prevent damage or claims from occurring. Ask your insurer about discounts for these.
• Ensure coverage limits reflect current costs to rebuild and update insurance policy to reflect any increase in square footage or remodeling improvements recently made.
• Consider adding three key coverages: automatic inflation guard coverage, ordinance and law coverage, and extended replacement cost coverage, for increased financial protection.
• Increase additional living expense coverage to cover extended reconstruction timeframes and higher rental costs.
• Understand your policy – do you have replacement cost coverage or actual cost value coverage.

The American Property Casualty Insurance Association (APCIA) is the primary national trade association for home, auto, and business insurers. APCIA promotes and protects the viability of private competition for the benefit of consumers and insurers, with a legacy dating back 150 years. APCIA members represent all sizes, structures, and regions—protecting families, communities, and businesses in the U.S. and across the globe.