Rates for catastrophe exposed homeowners and commercial property insurance rose through the fourth-quarter of 2019, with further rate increases also expected as insurers pull-back from areas particularly affected by disaster losses in recent years.
In analysing the trajectory of primary insurance market rates, MarketScout said that on average placements for U.S. commercial insurance saw rates increase by 5% in the fourth-quarter of 2019.
Meanwhile, the organisation also said that U.S. personal lines rates rose by 4.5% in the quarter, 3.5% over full-year 2019.
Catastrophe exposed property is driving rates in both commercial and personal lines categories, in particular on the residential property side of the market where rate increases are seen to be significant for high-value, cat exposed homes.
Richard Kerr, CEO of MarketScout, explained regarding personal lines rates, “We must all keep in mind, the barometer results include all types of personal lines insurance across the US. Massive placements for homes/autos/jewelry in the $300,000 to $800,000 value which are in non-cat prone areas impact the rate.
“If we were to measure homes over $5,000,000 in brush exposed areas of California, the average rate increase would be over 35 percent.”
The hardening personal property market has most severely affected high-net worth homeowners, MarketScout said, due to, “their propensity to own properties in catastrophe prone areas; those on the water or in the mountains/brush.”
Creative approaches are needed to try and mitigate the impacts of significant rate rises for these policyholders, MarketScout noted, somewhere we’d suggest that efficient insurance and reinsurance capital can assist, as well as new forms of coverage using different triggers and structures.
Homeowner properties under $1 million saw an average rate increase of 4.25% in Q4, while more expensive properties averaged a rate increase of 6.25%. But geographically within this there are significant variations based on how catastrophe exposed properties are deemed to be.
On the commercial side, where rates increased by 5% in the fourth-quarter and averaged up 3.5% for the full-year 2019, catastrophe exposed property is again driving rate.
Commercial property was up an average of 5.25% for the quarter, so above the sector, with umbrella and excess rates up even higher on average at 5.5%.
Large accounts above $250k and jumbo accounts of above $1 million led the way, with rate increases averaging 5.5%.
MarketScout believes the trends of higher rates for catastrophe exposed property is going to continue into 2020.
Kerr explained, “Insurers are utilizing the many catastrophe modeling tools to carefully analyze their property exposures. We expect many of the major property catastrophe insurers to curtail their 2020 writings in California brush and East and Gulf Coast wind areas. Naturally, this will result in higher rates to insureds.”
Part of this is driven by catastrophe loss experience, also by higher reinsurance costs that insurers have to bear.
But there could also be an element of climate related re-pricing going on within this as well, as some on both the insurance and reinsurance ends of the market are looking to apply greater price increases to peril regions they see as having experienced climate-linked catastrophe loss activity.
It’s hard to tell how much of a factor the perception of climate change risk is within pricing signals in the market, but it will be an interesting trend to watch over the years ahead.
As ever, while these primary property insurance rates are rising, they help to support higher reinsurance rates as well and also benefit those insurance-linked securities (ILS) players that access primary pools of property insurance risk, or that reinsure pools of these exposures.
In fact, the appetite of ILS funds may be moderating these rate increases somewhat, which could have been much higher without the influence of efficient capital from the ILS market.
In this way the ILS market’s ability to absorb peak catastrophe risk perils can help the ultimate insurance buyers, both homeowners and commercial, by making insurance more affordable than it perhaps would have been without the entry of capital markets.