Homeowners Insurer Retreat Signals Climate, Regulatory and Economic Challenges  June 7th 2023

Homeowners Insurer Retreat Signals Climate, Regulatory and Economic Challenges

The recent retreat of large homeowners insurance carriers, like Allstate and State Farm, from the California property insurance market signals ongoing regulatory constraints, rising cost inflation and higher catastrophe losses, according to Fitch Ratings.

“We expect these challenges to be neutral for rated insurers, as downside risks for insurers with broader national geographic premium diversification in the property/casualty homeowners’ segment are likely to fall within our rating expectations,” the rating agency added.

On May 26, State Farm announced it would temporarily halt the issuance of new homeowners insurance policies in the state.

Florida joins lawsuit against federal flood insurance changes that could upend property values

Florida has joined nine other states in a federal lawsuit challenging an overhaul of the National Flood Insurance Program, arguing the new system is flawed and will drive up premiums for many property owners.

The lawsuit, led by Louisiana Attorney General Jeff Landry, was filed Thursday in the federal Eastern District of Louisiana against defendants including the Federal Emergency Management Agency. It came after the program changes, which were phased in starting in 2021, became fully effective April 1.

The program plays a major role for Florida residents, many of whom are required to have flood insurance because of home mortgages. A document in the lawsuit said the program includes about 1.391 million Florida policies, with total coverage of nearly $367 billion.

Louisiana, Florida and the other states are challenging the new system, known as “Risk Rating 2.0: Equity in Action,” that changed the methodology for determining flood-insurance prices. Among other things, the lawsuit alleges the system improperly considers “hypothetical” future risks and doesn’t properly account for mitigation projects to protect properties from flood damage.

“While the agency (Federal Emergency Management Agency) paints a picture of nuanced calculations using massive data repositories that reveal a property’s individualized risks, the reality is much simpler: Flood insurance is going to be much more expensive for pretty much everybody,” the lawsuit said.

A section of the lawsuit that focused on Florida said “high insurance rates will cause people to leave the state of Florida because they can no longer afford to live in the state. In addition, it will depress property values, particularly in areas where flood insurance is required.”

But FEMA said on its website that the revamped system takes into account more variables that affect flooding and will result in rates “that are actuarially sound, equitable, easier to understand and better reflect a property’s flood risk.” Also, for example, it said the previous system did not account for the costs of rebuilding homes.

“Policyholders with lower-valued homes may have been paying more than their share of the risk while policyholders with higher-valued homes may have been paying less than their share of the risk,” the agency said. “Risk Rating 2.0 was not just a minor improvement, but a transformational leap forward for the NFIP (National Flood Insurance Program).”

AM Best: Only Two Impaired Insurers in ’22, Down From 10 in ’21

Despite the reversal seen in the U.S. equity market and rising inflation and interest rates, property/casualty insurers performed well in 2022, according to the latest report on the long-term impairment rates of AM Best-rated, U.S.-domiciled insurance companies.

The report, Best’s Impairment Rate and Rating Transition Study — 1977 to 2022, added just two P/C insurance companies to the list of impaired insurers in 2022, FedNat Insurance Co. and Americas Insurance Co. In the previous year, 10 carriers were identified as impaired by AM Best.

Rising loss costs, catastrophe frequency and social inflation were the main concerns for P/C insurers, even as pricing momentum and investment income remained favorable.

“Despite a moderate decline in surplus driven by significant unrealized losses in asset holdings, the majority of P/C companies maintain strong risk-adjusted capitalization,” the report stated.

The study, aimed at estimating the risk of impairment of U.S. insurers, covers 45 one-year periods from Dec. 31, 1977, to Dec. 31, 2022, and includes U.S. insurers that had at least one Financial Strength Rating (FSR) or one corresponding Long-Term Issuer Credit Rating (ICR) during the study period.

Survey: Businesses Bracing For Recession While Reversing Pandemic Cuts

Small and mid-sized business owners, like most American consumers, are increasingly concerned about economic conditions in the U.S., with two-thirds of them expecting a recession in the next six months, according to new data from Nationwide. Of those who expect a recession, more than 70% say it will be similar or even worse than the Great Recession of '07 – '09.

Just 19% of small business owners and 39% of mid-market business owners rate business conditions in the U.S. economy positively, down 8 points and 19 points, respectively, since September 2022.

• Inflation, interest rates top of mind
• Persistent inflation and rising interest rates continue to impact their businesses, with nearly three quarters of small and mid-size business owners citing inflation as their most significant challenge, up 11 points since September 2022.
• Increased interest rates are right behind with 62% of mid-market business owners and 50% of small business owners saying it's a continued challenge (up 4 points and 15 points, respectively, from fall 2022).
• Despite their grim views of the economy, most business owners (small-55%; mid-market-74%) are surprisingly optimistic about their own business operations. -74% of mid-market and 55% of small business owners rate their business conditions as good or excellent.

Returning to pre-pandemic practices

Business owners are even reversing some actions taken over the course of the pandemic, including:

• Hiring more, laying off less:
• 21% of small businesses owners say they have hired more workers, up 8 points from the fall.
• Only 6% of small businesses have laid off employees, a drop of 4 points from the fall.
• 42% of mid-market owners have hired new workers, an 18-point jump.
• 18% of mid-market businesses conducted layoffs within the past 6 months, down 5 points from the fall.

Managing supply chain disruptions:

• 21% of small businesses say supply chain disruptions are among their biggest challenges, a drop of 8 points from the fall.
• 31% of mid-market businesses list supply chain disruptions as one of their biggest challenges, consistent with their responses from the fall.

Staying open longer:

• Only 10% of small business owners have reduced operating hours – down 7 points from the fall.
• 14% of mid-market owners have reduced operating hours, a decrease of 11 points.

These positive indicators demonstrate that business owners may be finding their footing in some areas as they continue to navigate inflation effects and rising interest rates.

Cutting costs remains a top priority for business owners (63% small business; 49% mid-market) as they hedge where they can to minimize risk. "Business owners are closely analyzing today's economic uncertainty, but they're also confident in their operations as they manage through the conditions to best meet demand and remain competitive," says Russ Johnston, President of Business Insurance at Nationwide. "As business owners navigate the tight labor market to add staff, get back to traditional operating hours and explore cost-saving strategies, it is imperative that they review risk and ensure the business does not compromise on long-term protection."

Consumers everywhere want humanized experiences when navigating the insurance industry

Duck Creek Technologies launches the second edition of the Global Consumer Insurance Insights survey of over 2,000 global consumers, aimed at refining the strategies that bring insurers closer to consumers worldwide

Duck Creek Technologies, the intelligent solutions provider defining the future of property and casualty (P&C) and general insurance, has proudly published its second annual benchmark survey, 2023 Global Consumer Insurance Insights. The survey reveals strong demand from global consumers for humanized insurance purchasing, switching and communication experiences through digital channels.

The 2023 wave of research – which is being launched at the Duck Creek Technologies Formation ‘23 event for customers and partners from May 8-10, was conducted independently by Research in Finance for Duck Creek Technologies and surveyed over 2,000 policyholders across 13 countries, all of whom held at least one insurance policy.

Aimed at refining the strategies that bring insurers closer to consumers worldwide, this year’s survey is more extensive than the inaugural 2022 edition, with more questions and responses from policyholders across more countries. The survey provides insights for carriers, reflecting consumer preferences and awareness of innovation opportunities, purchasing, and communication methods.

Key findings from the survey:

• 93% of consumers are confident they have the proper coverage, irrespective of which channel they used to purchase the insurance policy.
• Once a policy is in place, 44% of consumers prefer human interaction (2022: 35%). At the same time, however, interest in app/WhatsApp usage for buying and switching insurance also increased year-over-year.
• 46% of global consumers are unaware of embedded insurance. Of those who were aware (37%), almost half said they trust it because of product or retailer quality. Those who do not trust it (26%) find embedded insurance unnecessary and expensive. Those who are unsure (29%) require more information, having had little experience with embedded insurance.

State Farm faces class action for allegedly shortchanging luxury car owners

Fort Lauderdale attorney Cristina Pierson and her co-counsel Daren Stabinski, P.A., have planted their heels into a battle with State Farm Automobile Insurance Co. over alleged breach of contract for insurance coverage of luxury vehicles, going back as far as five years.

If successful, the recovery will be well into the millions, attorneys said.

“This is one of those cases where you just you just hear what’s happening, and it shouts to you that something needs to be done,” said Cristina Pierson, partner with Kelley Uustal.

The plaintiff lawyer and her co-counsel decided to take on the proposed class action when Stabinski was representing Assaf and Ada Sasson as plaintiffs in a lawsuit against State Farm Mutual Automobile Insurance Co. last year. Their clients, the Sassons, had paid out of pocket to fix a Porsche, even though the Sassons had full insurance coverage with the insurer.

The Sassons took their vehicle to a Porsche-certified repair shop in Fort Lauderdale, but State Farm only pay a specified lower hourly rate of reimbursement, the complaint said.

“It’s not right,” Pierson said. “You look at your insurance contracts, and it specifically says you can take your car to whatever repair facility. People pay more for insuring their expensive cars. Just because you have a Porsche you pay $100,000 for, you don’t want to go to just any body shop that doesn’t necessarily have the expertise to make repairs properly, per manufacturer’s specifications.”

State Farm, unlike other insurers in the state of Florida, “refuses to pay the prevailing competitive price for the hourly labor rates at these certified repair facilities,” the suit alleged.