July 3, 2022
  • July 3, 2022

U.S. P&C insurance rates exposed to Cat rise again in Q3: MarketScout

By on October 6, 2021 0


Property insurance rates continue to skyrocket for homes and businesses in disaster-prone areas of the United States, while coverage issues increasingly appear for these high-value buildings in areas of the United States. peak of disaster.

That’s according to the latest data from MarketScout, which shows some of the biggest increases in insurance rates are seen in property risks in disaster areas such as Florida winds and California wildfires.

Part of it is an industry responding to recent catastrophe losses and the resulting higher reinsurance prices as primary insurers have to cover their costs while making a margin.

But increasingly, it seems that the primary industry is also responding to fears about changing trends in frequency and severity, including the perceived implications of climate change, as well as the social factors that are causing claims inflation.

All of this means that the United States has seen steady and possibly accelerated rate hikes for real estate in peak disaster areas and this trend is now showing signs of slowing down.

The latest quarterly data from MarketScout, in the third quarter of 2021, shows that commercial property insurance rates have increased by an average of 9%.

However, rate increases for commercial properties have been much higher in disaster areas, with wildfire areas in California and windy coastal areas of Florida seeing rate increases of more than 20% in the past. third trimester.

Similar trends are seen in the pricing of primary insurance, again with carriers struggling to cover loss costs, capital costs, expenses such as reinsurance, inflation and a margin, this which results in larger increases.

Homes valued under $ 1 million saw average rate increases of 4% in the United States, while homes valued over $ 1 million saw higher increases of 7%.

“We always expect more aggressive prices for homeowners in the third quarter of any given year as insurers start to incur losses from wind and forest fire claims,” ​​said Richard Kerr, CEO of MarketScout.

But he added that “the increases in national average rates for homeowners are not horrible; however, for those with homes in California and Florida, the rates can go up to 25%.

What is now starting to cause growing coverage problems for homeowners in areas particularly prone to disasters, Kerr explained.

“California homes of $ 20 million and over with high wildfire exposure may not even be able to provide full coverage,” he explained, adding that “of the 40 % are not unusual “.

Catastrophe property insurance rates have been far above average since at least the end of 2018.

The industry has reacted to its losses, but now with problems related to more frequent lesser weather disasters and social inflation, as well as the climate change factor, at the top of the list, the trend continues and may be accelerating in some areas.

It also raises questions about the adequacy of reinsurance rates, given that these primary rate increases are seen as much larger than on the reinsurance side.

Of course, these are more localized, with many reinsurance treaties covering much wider areas.

But in the specific arena of real estate catastrophe reinsurance, particularly when coverage is sought for a specific peak risk area or state (such as Florida), this trend in primary pricing suggests that reinsurance should continue as well. to increase.

MarketScout predicted this a quarter ago.

The pace of primary increases also suggests that the reinsurance rate has not risen fast enough in recent years and may continue to lag in some cases.

Higher rates are a way back to more sustainable profitability, in a world of frequent losses due to weather and climate conditions, as well as the amplification of losses and inflationary effects.

The major carriers seem to understand this and hence their push towards perceived price adequacy. The question is: does the reinsurance market?

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