Predict & Prevent Podcast: Risk & Insurance - "The best claim is the one that never happens"  August 22nd 2023

Insured Maui fire losses likely to top $1 billion

It will be some time before the full extent of the devastation done in areas of Maui, Hawaii by wildfires that ignited August 8, is fully known, but some across the insurance and financial industry have already released analysis on how much of a hit they believe insurers may take from this disaster. While the estimates vary, they all have one common conclusion: Insured losses from the fires are likely to surpass $1 billion.

Here’s a glimpse at some of the analysis these organizations have shared so far.

Karen Clark & Company

Using their U.S. Wildfire Reference Model, Karen Clark & Company (KCC) estimates insured property losses from the Lahaina fire will be around $3.2 billion. They report more than 2,200 structures existed within the Lahaina fire perimeter, with over 3,000 total buildings affected, including secondary impacts like branding and smoke damage.

In addition to factors of drought and winds from passing Hurricane Dora, KCC also attributes the fires’ rapid spread in Lahaina to the high proportion of wood frame and older construction buildings in the town.

CoreLogic

When it comes to structures vulnerable to the fires, CoreLogic estimates there were 3,088 residential home with $1.3 billion in total reconstruction cost within three preliminary wildfire perimeters on Maui:

• Lahaina: 2,808 residential properties with a reconstruction value of $1,127,048,435.

• Pulehu: 275 residential properties with a reconstruction value $146, 627,816.

• Pukalani: 5 residential properties with a reconstruction value $4,212,390

It’s important to note that not all structures within these areas sustained damage, and not all of those that were damaged sustained a 100% loss.

Allstate and top insurers brace for Maui wildfire impact on finances

Analysts weigh in on the impact of record-breaking fires to their bottom lines

Property and casualty insurers with exposure to Hawaii are set to incur catastrophe losses that may negatively impact their third quarter earnings, new analysis has found.

Citi analyst Joshua Shanker said fast-moving fires that swept across Maui this month are projected to result in approximately $1.3 billion in homeowners’ losses. The only other event to surpass this total in Hawaii’s recent history is Hurricane Iniki in 1992, which resulted in insured losses of about $3 billion.

“While major hurricanes and earthquakes have historically represented the most devastating insured loss events, the Maui wildfires are another indication that wildfires, tornados and thunderstorms have increased their potential to be multi-billion-dollar events and that the concerns around catastrophe risk have spread from what had typically been a California, Florida and Gulf of Mexico focus,” said Shanker, as quoted by Seeking Alpha.

Considering the significant losses seen in Maui, Shanker went on to note that P&C insurers operating in Hawaii may find themselves resorting to reinsurers to help offset losses surpassing certain thresholds.

Consumer advocates question insurers' wildfire risk models

The models and technology that carriers use to evaluate risk have become part of the regulatory debate following several withdrawals from the California insurance market attributed to wildfires.

Carriers have been lobbying the California Department of Insurance (CDI) for the right to increase premiums at the same time that they have been citing climate change as a reason for dropping coverage, according to Carmen Balber, executive director of Los Angeles-based consumer advocacy non-profit Consumer Watchdog. California consumer protection laws (Cal. Code Regs. tit. 10 § 2644.5) prohibits using catastrophe models to determine wildfire risk and set rates, because these are "black box" models that are not transparent to CDI and the public.

Private flood insurers grasp opportunities to grow market share across the US: Triple-I - Reinsurance News

The US flood insurance market has grown 24% between 2016 and 2022, from $3.29 billion in direct premiums written to $4.09 billion, and it is against this background that private flood insurers are seizing opportunities to grow their market share, according to Triple-I

This coincides with the federally backed National Flood Insurance Program’s (NFIP) new pricing methodology that is generating premium increases for many of its policyholders.

“The timing of the private market’s increasing appetite for flood risk is fortuitous, as it coincides with Risk Rating 2.0, NFIP’s new pricing methodology that aims to make the government agency’s flood insurance premium rates more actuarially sound and equitable by better aligning them with individual properties’ flood risk,” the Insurance Information Institute noted.

Adding: “As NFIP rates become more aligned with principles of risk-based pricing, some policyholders’ prices are expected to fall, while many are going to rise.”

It is reasonable to expect that, as the cost of participating in the government-run flood insurance program rises for some, the institute stated, private insurers will recognize the market opportunity and respond by applying cutting-edge data and analytics capabilities.

Hurricanes risks on the rise - how risk managers can prepare

The National Oceanic and Atmospheric Administration (NOAA) has increased its prediction for the ongoing 2023 Atlantic hurricane season from a near-normal level of activity to an above-normal level of activity.

The Atlantic basin has already experienced an active start to the hurricane season with five storms that have reached at least tropical storm strength, including one hurricane already.

An average hurricane season produces 14 named storms, of which seven become hurricanes, including three major hurricanes.

However, NOAA’s update - which covers the entire six-month hurricane season - calls for 14-21 named storms (winds of 39 mph or greater), of which 6-11 could become hurricanes (winds of 74 mph or greater).

Of those, 2-5 could become major hurricanes (winds of 111 mph or greater).

The main climate factors expected to influence the 2023 Atlantic hurricane activity are the ongoing El Nino and the warm phase of the Atlantic Multi-Decadal Oscillation, including record-warm Atlantic sea surface temperatures.

El Nino conditions are currently being observed and there is a greater than 95% chance that this will continue through the Northern Hemisphere winter, according to the latest ENSO discussion from the Climate Prediction Center.

NAIC to Ask for Data to Better Understand Property-Market Availability, Affordability

The National Association of Insurance Commissioners said at its Summer National Meeting that it plans to collect data from insurers in order to help insurance regulators better understand property markets, especially when it comes to availability affordability.

“The increasing frequency and severity of weather events, rising reinsurance costs, and inflationary pressures are making property insurance availability and affordability more challenging for a growing number of regions across the U.S.,” the NAIC said in a statement last week. “These dynamics can vary within a relatively small geographic area, so while a state’s property insurance market may be generally healthy overall, there can be localized protection gaps that challenge certain communities.”

While acknowledging that state regulators have robust financial data to assess insurers’ solvency and investments, the NAIC said states may lack the kind of data to gauge the availability and affordability of insurance for consumers. The NAIC had previously adopted a measure for the group’s Property and Casualty Insurance Committee to develop property-market intelligence to identify coverage gaps, changes in deductibles, changes in coverage types, and availability and affordability.

Under Alan McClain, commissioner of the Arkansas Insurance Department and chair of the NAIC committee, insurance regulators of at least 30 states have started work to identify where data is lacking, and it intends to develop a data template with the goal of establishing “a long-term, robust data collection strategy to help regulators more nimbly respond to inquiries related to their property markets versus a one-time data call.”

2023 U.S. Small Commercial Insurance Study | J.D. Power

Despite steadily rising interest rates and strained business conditions, U.S. small businesses are increasingly satisfied with the products and services they are receiving from their commercial insurance providers.

According to the J.D. Power 2023 U.S. Small Commercial Insurance Study released today, overall customer satisfaction has reached an all-time high of 847 (on a 1,000-point scale) as customers note significant year-over-year improvement in three of five factors evaluated in the study.

“Contrary to what we’ve seen in personal lines insurance, small business customer satisfaction keeps rising even as premiums have continued to climb,” said Stephen Crewdson, senior director of global insurance intelligence at J.D. Power. “While the overall satisfaction numbers are high, there are some important variations based on the size of the small business. The trend is really being driven by businesses in the ranges of five to 10 employees and 11-50 employees, as opposed to the micro businesses with fewer than five employees. That variation should inform more targeted small business strategies on the part of insurers.”

Rate Hikes Not Bringing Profit to U.S. Auto Insurers: Fitch

Jumps in rates and written premiums did little to move the needle on underwriting profits for U.S. personal auto insurers, Fitch Ratings reported based on a recent review of midyear results of nine big market players.

Profitability challenges in the auto line prompted a Fitch downgrade of the lead subsidiary of one of the insurers, Kemper, yesterday, and a changed outlook for another, Horace Mann. Separately, S&P Global Ratings downgraded yet another—Allstate—earlier this week.

In their analysis of public company GAAP filings titled, “U.S. Auto Insurer Profit Recovery Slow to Materialize,” published earlier this week, Fitch analysts calculated a 10 percent aggregate increase in premiums for the nine-company cohort for the first six months of 2023. But the aggregate combined ratio for the group improved less than a point, dropping to 100.4 for first-half 2023, compared to 101.3 for the same period last year.

California regulator probes crashes involving GM's Cruise robotaxis

California's autos regulator said on Friday it is investigating "recent concerning incidents" involving autonomous vehicles operated by General Motors (GM.N) unit Cruise in San Francisco and asked the company to take half its robotaxis off the roads.

The statement from California Department of Motor Vehicles (DMV) came after a Cruise robotaxi was involved in a crash with an emergency vehicle in San Francisco late on Thursday, the latest accident involving the self-driving cars.

The regulator also said it has asked Cruise to immediately reduce its active fleet of vehicles by 50% until the investigation is complete and Cruise takes actions to improve road safety. Cruise has agreed to a 50% reduction, it added.

"The DMV reserves the right, following investigation of the facts, to suspend or revoke testing and/or deployment permits" if it is determined to be an unreasonable risk to public safety, the regulator said in a statement.