Juneteenth: What It Is And How It Is Observed  June 19th 2023

Limited capacity, undervalued properties roil coastal insurance markets

Even coastal properties with appealing risk profiles still face rate increase increases between 15%-50%. 

Coastal areas across the U.S. have experienced recent changes in weather patterns. According to the National Oceanic and Atmospheric Administration, in 2022, 18 separate weather and climate disasters cost at least $1 billion in damages in the U.S. Most were hurricanes, storms and floods.

The United States Geological Survey predicts that over the next hundred years in California, about half a million people and $100 billion worth of coastal property will be at risk. Florida recently suffered between $50 billion and $65 billion in damages from Hurricane Ian — the second-largest insured loss on record. These weather incidents result in a lack of carrier capacity enhanced by rising rates and a trend of properties being valued incorrectly.

Increased insurance coverage rates

As severe weather affects the U.S. coasts, insurance carriers’ room for adequate catastrophe risk capacity is diminishing. With carriers rolling back their capacity, commercial property owners along the coast must contend with rate, valuation and deductible increases.

In its Global Insurance Market Update, Marsh reported that the 2022 fourth quarter experienced increased property rates for the 21st consecutive year. The increase caused carriers to look for ways to mitigate costs. This resulted in a challenging environment for catastrophe-exposed properties. Properties with appealing profiles still face increases between 15% and 50%.

Undervalued coastal properties

Properties not only don’t have adequate coverage, but they’re also discovering coverage gaps in their current appraisals. A study by Kroll found that 68% of buildings valued from 2020-2021 were underinsured by 25% or more. And nearly 90% of appraised buildings were undervalued. Some properties in coastal states don’t have any coverage. The Insurance Information Institute reports that only 18% of Florida’s residents have flood insurance for their homes.

The lack of protection and misevaluations leave property owners confronting unexpected losses with premiums that are ill-equipped to deal with them. Increased rates and a lack of capacity complicates finding insurance coverage and protection for property owners in coastal states across the U.S.

Risk professionals and senior leaders must anticipate and proactively manage risks to thrive amid uncertainty in a dynamic industry. As underwriters scrutinize a business’s risk capacity, buyers will be challenged to differentiate their risk during the renewal process. They may need to rethink the elements of their insurance contracts. This requires an approach rooted in data and analytics.

Stephen McCord, regional sales leader and senior vice president of real estate & hospitality at Marsh McLennan Agency

Farmers Halts New Florida Homeowners Business as Risk, Costs Climb; Company Monitoring California Developments

In California, Farmers Insurance Group is the 2nd largest writer of homeowners multiperil, with a 14.46% market share, according to BestLink.

Farmers has stopped writing new homeowners policies in Florida, a move intended to more effectively manage risk exposure during “historically high” catastrophe and continually climbing reconstruction costs, according to spokesman Luis Sahagun.

At least 15 companies have put a moratorium on new Florida homeowners business over the past 18 months, Insurance Information Institute (III) spokesman Mark Friedlander said. Some of those were among the seven carriers declared insolvent in Florida, he added.

“We’re not seeing any indications of stability in the marketplace” despite recent rounds of legislation intended to curb claims fraud and abusive legal costs, said Friedlander.

Sahagun called Farmers’ action in Florida a “pause” and would not define further what that means. Farmers Insurance Group was the 16th largest writer of homeowners multiperil insurance in Florida in 2022 with a 1.92% market share, based on direct premiums written, according to BestLink.

Friedlander listed a number of factors pointing to an unstable market. “More than 50% of the 47 Florida-domiciled insurers remain on the watch list of a regulator.”

III found that homeowners rates rose 100% over the past three years in the Sunshine State: 27% in 2021, 33% in 2022 and 40% last year. The average cost of a policy is now $6,000 in Florida, Friedlander said.

Direct-to-Consumer Insurance Appeals to Commercial Buyers and Carriers, but One Size Does Not Fit All -

The desire for DTC is growing. What could that mean for the commercial insurance landscape?

Traditionally, insurers have relied on selling coverage through their trusted networks of brokers. But now, the market is slowly but surely starting to change.

Carriers and aggregator comparison websites have been selling their personal auto, property and travel insurance policies direct to consumers online almost since the advent of the internet — a trend that accelerated during COVID-19, as consumers made more purchases online and Insurtechs such as Lemonade and Hippo grew in popularity.

That model is now gaining some traction in the commercial market, particularly in professional liability, general liability, property and cyber for small businesses. Yet uptake so far has been slow, and there are only a handful of providers out there

Alan Murray, associate director at AM Best, believes that the direct-to-consumer (DTC) model has the potential to significantly reshape the commercial sector, from the type of products sold to the way they are bundled, as well as how the products are distributed and the role that agents and brokers will play.

“The approach of some of the major commercial insurers has generally been incremental, not so much through a break with the traditional agency/broker model but through attempts to automate data collection and underwriting decision-making in a way that enables the agency base to enhance its efficiency by automating otherwise time-consuming processes,” said Murray.

SHOCKING (pun intended)! San Francisco area becomes first U.S. region to hit 50% EV adoption

Half of new auto registrations in the San Francisco designated market area (DMA) were for electric vehicles (EVs), making the city the first in the nation to reach this level of adoption, according to a new report.

S&P Global Mobility shared new research this week that showed the San Francisco region’s 50% electrification rate, which includes both EVs and hybrid models, was more than three times greater than the national average of 16.6% during the same March period.