Commentary/Opinion
How the reinsurance market shapes P&C insurance rates for real estate investors
This article was provided by REInsurePro
Most property owners don’t give much thought to reinsurance, but those in the insurance industry know it’s one of the most significant factors driving coverage availability and pricing. Reinsurance acts as the financial backbone of the insurance market, enabling primary carriers to manage risk, absorb catastrophic losses, and maintain capacity. When a major event occurs, whether a hurricane in Florida, wildfires in California, or even an earthquake overseas, the reinsurance market is impacted, and it triggers shifts that ultimately affect the cost and availability of insurance worldwide.
For real estate investors, these market fluctuations can significantly influence insurability and affordability of coverage, especially as many carriers already view investment properties as inherently riskier than owner-occupied homes.
Transferring risk for financial stability
The primary function of reinsurance is to transfer risk. When a primary insurer takes on a portfolio that includes high-value properties in disaster-prone locations or other exposures beyond their comfort level, they seek reinsurance to help offset the impact of potential losses. This allows primary carriers to continue underwriting policies and assume more risk than they otherwise could.
For real estate investors, the reinsurance market plays a critical role in keeping property and liability coverage accessible. Without it, many carriers would likely have to charge significantly higher premiums or decline investment properties altogether due to their perceived level of risk. Instead, reinsurance allows insurers to price coverage at levels that, while not always inexpensive, are at least more manageable than they would be if primary carriers were left to absorb all risk alone.
News
State Farm’s California Emergency Rate Request Dropped to 17%
Lawyers for State Farm General, the California Department of Insurance and Consumer Watchdog presented opening arguments in a hearing to determine the fate of State Farm’s request for an emergency homeowners rate increase yesterday.
The public hearing in Oakland, Calif., before Administrative Law Judge Karl-Fredric Seligman was originally set for parties to present arguments for and against a 22 percent rate hike. But last Friday, State Farm’s California homeowners insurer and CDI agreed that the figure for the interim increase could be lowered to 17 percent.
Importantly, that agreement not only brought the rate request down 5 percentage points but also stipulated that State Farm Mutual—the parent company—would make a $400 million capital infusion into State Farm General (via a surplus note) and that if a full hearing, scheduled for June, finds the 17 percent is not actuarially supported, then the company will repay policyholders with interest.
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Research
U.S. Roof Claims Costs Reached Over $30 Billion In 2024, Underscoring Evolving Risks
Verisk (Nasdaq: VRSK), a leading global data analytics and technology provider, today released its U.S. Roofing Realities Trend Report, which identifies trends and challenges in roof conditions. These are supported by insights from Verisk’s personal property solutions, which are used by many of the top P&C insurance carriers to gain a granular understanding of roof risk— which is among the costliest claim.
In recent years, roofs have become one of the most critical structural components for residential property insurers assessing underwriting risk. As the insurance industry looks to enhance accuracy and promote fair premiums for insurers and policyholders, the following challenges persist:
Peril severity and outdated practices are driving up costs
- In 2024, roof repair and replacement cost value totaled nearly $31 billion, up nearly 30 percent since 2022.
- Roof related line items made up more than a quarter of all residential claim value in 2024. Wind and hail were the predominant drivers of these loss costs, accounting for more than half of all residential claims. Since 2022, non-catastrophic wind/hail roof claims increased from 17 percent to 25 percent, highlighting the growing impact of this peril despite the greater focus often placed on catastrophic events.
- Solely relying on practices such as in-person home inspections can limit an insurer’s ability to effectively assess risk. Limited roof visibility from the ground level can cause inspectors to miss signs of damage. This can also inhibit insurers from adopting more up-to-date pricing, coverage and risk management strategies.
Insurify Projects 2025 Home Insurance Costs Will Increase up to 27% in Some States
Insurify, Americans' top-rated digital insurance agent, has released its third annual American Homeowner Insurance report. The report examines probable home insurance rate movements in every state and identifies ones where costs will rise the most and the most rapidly in 2025. States with high storm and wildfire risks will see the greatest increases, Insurify predicts. Louisiana stands to see the biggest increase — 27%. And the data projects that Californians could see their home insurance costs spike by 21% in 2025.
Following a 20% increase over the past two years, national average home insurance costs will rise another 8% in 2025.
The report projects that the national average cost of home insurance will rise another 8% in 2025, following a 20% increase over the past two years.
Even inland states with comparatively lower weather and fire risks will experience significant increases. In Iowa, damage from escalating wind and hail events will contribute to a 15% rise in home insurance rates. Minnesota, which has experienced 18 billion-dollar disasters between 2022 and 2024, will also see a 15% increase.
"Severe weather risks are a top driver of home insurance rate increases," said Hayden Broberg, Vice President of Commercial Partnerships at Insurify. "Between 2022 and 2023, the number of hail events in Iowa has soared 133%. Add higher repair and materials costs into the mix, and you have an environment in which insurers can no longer afford to carry as much risk as they once did."
Neptune Flood Research Group Releases Analysis of Flood Risk and Insurance Challenges in Kentucky, Tennessee & West Virginia
Neptune Flood has released its analysis of the increasing flood risk across Kentucky, Tennessee, and West Virginia after catastrophic flooding in early 2025, fueled by increased rainfall, mountainous terrain, and aging infrastructure. Despite this rising hazard, due to price increases under the National Flood Insurance Program's (NFIP) Risk Rating 2.0, flood insurance participation is declining rapidly from a very low base, leaving the region financially exposed.
The report found here, analyzes the protection gap and highlights the opportunity for private market solutions.
Key data points include:
Recent significant flooding events: - 2025 Flooding: 21 deaths, 1,100+ NFIP claims - 2022 Eastern Kentucky flood: 44 deaths, ~9,000 properties damaged - 2016 West Virginia flood: 23 deaths, $1.1B+ in property damages - 2010 Nashville flood: 21 deaths, $2B+ in property damages
Flood exposure is significantly underestimated: - FEMA maps identify ~365,000 buildings in high-risk flood zones across the three states - First Street Foundation estimates ~950,000 properties face substantial flood risk, 2.5x higher
Insurance coverage is critically low and declining: - Fewer than 1% of homes have flood insurance across all three states I- n the 2022 Kentucky floods, 95% of damaged homes were uninsured - From 2021-2024, NFIP policies across the three states fell by 17% -In the last 20 years, insured flood losses exceed $600M, with far greater uninsured losses - Premium increases under Risk Rating 2.0 are straining affordability: - Dozens of counties across the region are facing premium increases of 200% or more - Many Appalachian counties face premiums equal to 6–9% of household income
New Survey Signals Drivers are More Distracted Than They Appear
Although most drivers recognize the importance of safe driving, a new survey from Nationwide, released in conjunction with National Distracted Driving Awareness Month, reveals a troubling gap between awareness and action. Many admit to risky behaviors behind the wheel—often involving smartphones and other distractions. An overwhelming majority say unsafe driving habits have increased over the past year, with 92% agreeing that drivers are looking at their phones more frequently. Even more alarming, 1 in 10 (11%) confess to reading or writing emails while driving.
Phones continue to distract
While most drivers are familiar with distracted driving laws—such as texting restrictions (81%), hands-free requirements (76%), handheld phone bans (74%), and related penalties (67%)—many remain skeptical about their impact. In fact, fewer than half (48%) believe these regulations are effective in reducing distracted driving behaviors.
"Far too many people believe they're immune to distraction or that a 'quick check' won't hurt," says Casey Kempton, Nationwide's President of Personal Lines. "Our latest survey data clearly reveals that these split-second decisions can have serious consequences. Nationwide is committed to driver safety, a phone in the hand while driving is a dangerous distraction."
Phones aren't the only devices that are taking drivers' attention off the road. Nearly half (47% up +6% from 2024) of consumers also express concerns that built-in touch screens and displays designed for navigation, communication, and entertainment actually contribute significantly to driver distraction.
When used correctly tech can be a solution for safer driving
While the data highlights the pervasive nature of distraction, it also points to solutions.
Drivers who take conscious steps to limit phone use and other temptations can meaningfully reduce their likelihood of accidents. The Nationwide survey also shows growing consumer support for telematics tools like dashcams and AI-enabled monitoring systems to encourage safer driving behavior:
- 85% of consumers agree dashcams encourage safer driving practices.
- 94% of consumers say dashcams provide valuable evidence during accidents or disputes, including rideshare contexts.
- 20% already have dashcams installed, and 60% indicate comfort with AI-enabled dashcams that monitor driver behaviors.
- 41% believe using AI-powered dashcams should qualify drivers for lower insurance premiums.
AI in Insurance
States’ AI-Related Legislation Aimed at Insurance Is ‘Unfounded,’ Says NAMIC
Policy discussions on the use of artificial intelligence in insurance are ‘unfounded’ and ‘detrimental to policyholders,’ according to an analysis from the National Association of Mutual Insurance Companies (NAMIC).
The use of AI in insurance underwriting and rate making has led to concern from some regulators, advocates, and policymakers over whether AI would lead to proxy discrimination, an algorithmic bias, and eventual changes to the affordability and availability of insurance products in certain areas or for certain classes. FULL ARTICLE
InsurTech/M&A/Finance💰/Collaboration
Lincoln Financial and Bain Capital Announce Long-Term Strategic Partnership
Lincoln Financial (NYSE: LNC) today announced an $825 million strategic growth investment from Bain Capital, a leading global investment firm. Bain Capital will acquire a 9.9% stake in Lincoln Financial, creating significant alignment and long-term value creation opportunities across an array of strategic initiatives over time, with a focus on advancing Lincoln’s goal of sustained profitable growth.
As part of the transaction, Lincoln and Bain Capital have agreed to enter into a 10-year, non-exclusive strategic investment management relationship, with Bain Capital becoming an investment manager across a variety of asset classes including private credit, structured assets, mortgage loans, and private equity. This partnership provides Lincoln with access to a sustained source of high-quality private asset classes with differentiated risk-adjusted returns that enhance Lincoln’s existing multi-manager platform.
“Today’s announcement marks a pivotal milestone for Lincoln and highlights our commitment to delivering long-term value for our stakeholders,” said Ellen Cooper, Chairman, President and Chief Executive Officer of Lincoln Financial. “This partnership aligns us with a highly reputable organization whose powerful platform and shared values and goals will enable us to accelerate the execution of our strategy. We are extremely pleased with the strategic and financial benefits of our mutual capabilities and believe this partnership positions us for future success.”
Today
Trump Authorizes 90-Day Pause on Reciprocal Tariffs, Stocks Skyrocket - Newsweek
Stocks are surging Wednesday afternoon after President Trump announces a 90-day pause on tariffs except for China
Stocks are surging Wednesday afternoon after President Donald Trump announced a 90-day pause on tariffs except for China, sending the Dow up 1,800 points.
Amid a global market meltdown, Trump abruptly reversed course by pausing most of his tariffs on U.S. trade partners for 90 days, while sharply increasing the tariff rate on Chinese imports to 125 percent.
Recommended Events
ClimateTech Connect coming to Washington DC next week on April 15th-16th. ***Registration Closes this Friday!***
As extreme weather events are growing around the world in frequency and severity, there is a rising tide of cutting-edge technological innovation to combat the challenge head on, which is at the center of the inaugural ClimateTech Connect coming to Washington DC next week on April 15th-16th.
Tariffs/Insurance
Insurance Industry Contemplates Knock-On Effect of Tariffs to Claims, Consumers
Insurance industry analysts, economists and trade associations have continued to look at the potential effect of President Donald Trump’s tariffs.
About a month after Trump looked to impose steep tariffs on China, Mexico and Canada, the administration on April 2 applied at least a 10 percent tariff on all exporters to the U.S.—with dozens of countries seeing higher, in some cases much higher, tariffs. Plus, a 25 percent tariff applies to all imported cars and parts.
The stock market has since been in turmoil as investors deal with rumor, hear from business leaders and try to figure out the ultimate effect.
The industry in March reacted to Trump’s tariffs on China, Mexico and Canada by saying they would negatively affect the insurance industry—particularly U.S. homeowners and auto insurance. American Property Casualty Insurance Association (APCIA) CEO David A. Sampson said at the time that the trade association recognized tariffs as “effective tools of government” but added that the tariffs are “so broad that they are likely to hurt families, individuals and business owners they are meant to protect.”
Chad Hemenway
Los Angeles Wildfires
Consumer Watchdog: "State Farm's Emergency Rate Hike is Not Justified"
In the first day of hearings, Consumer Watchdog made its case before Administrative Law Judge Karl-Fredric Seligma that California regulators should deny State Farm's request for an emergency increase in homeowners insurance premiums, saying the company hasn't provided evidence to justify charging consumers more. The company on Friday proposed reducing its requested rate hike for homeowners from 22% to 17%, with more support from the parent company, but Consumer Watchdog said those changes still do not justify the rate hike.
"State Farm is trying to push through a rate increase without following the rules," said William Pletcher, Consumer Watchdog's lead attorney at today's Department of Insurance hearing. "The company hasn't made the case required under the law – their proposal isn't even consistent – first they wanted 22%, now they want 17%. We're glad the amount went down, but it still needs to be justified, and State Farm has not."
Copies of documents filed in the case can be found here, including Consumer Watchdog's objections, and here, and the declarations of Consumer Watchdog's actuary here, and here.
State Farm Expert Disqualified For Conflict of Interest, Also Working for Department of Insurance
Administrative Law Judge Seligman ruled that State Farm's expert Nancy Watkins could not testify on behalf of State Farm's rate request because she is also working as an expert consultant for the California Department of Insurance. The Judge left open the possibility that he would revisit that decision later in the hearing. Watkins' contract, obtained from a Public Records Act request, shows she was charged with drafting regulations to allow insurance companies to pass on reinsurance costs to consumers and responding to public comments about the regulations. Consumer Watchdog criticized the conflict of interest at the time, noting Watkins's work as an industry expert.
IBHS releases Resilient Rebuilding: A Path Forward for Los Angeles, a blueprint for survivable and insurable homes and communities
The Insurance Institute for Business & Home Safety (IBHS) today released Resilient Rebuilding: A Path Forward for Los Angeles, a blueprint for rebuilding a more survivable and insurable Los Angeles after the devastating Eaton and Palisades Fires. IBHS calls on local leaders to take regulatory action to ensure critical structural and defensible space requirements and specific mitigation actions needed to make the next generation of Los Angeles homes and communities more wildfire resilient are taken during this historic rebuilding.
"We are at a critical point for rebuilding in Los Angeles – one where the survivability and insurability of the next generation of LA's homes and communities is decided," says Roy Wright, CEO of IBHS and a member of the LA County Blue Ribbon Commission on Climate Action & Fire Safe Recovery. "Research-based fire mitigation actions can meaningfully reduce the risk of wildfire now and in the future."
Offering a play-by-play sequence of actions, IBHS addresses the exact wildfire mitigation actions and critical retrofits to strengthen survivability and insurability for homes and communities. The paper provides specific regulatory actions to make these recommendations a reality. IBHS calls on Los Angeles County and the City of Los Angeles to:
Extend Chapter 7A requirements and develop a Zone 0 standard for the entire Eaton Fire footprint. (Zone 0 is the zero-to-five-foot area immediately surrounding a structure that must be free of vegetation and any combustible items.)
Develop and apply a Zone 0 standard to the Palisades Fire footprint.
Enhance Chapter 7A requirements with additional mitigation actions as required by the IBHS Wildfire Prepared Home Plus standard.
Enact local defensible space requirements addressing Zone 0 across all at-risk communities within Los Angeles.
Use setbacks to maximize the spacing between structures to the greatest extent possible.
Use local planning and financial resources to establish and maintain fuel breaks along the periphery of communities in highest hazard zones.
Develop plans to retrofit all surviving homes with baseline wildfire protections, through requirements, incentives and financial support.