Cat exposed US property insurance rates soar again in Q3: MarketScout

Property insurance rates continue to soar higher for homes and businesses in catastrophe exposed regions of the United States, while coverage issues are increasingly emerging for those high-value buildings in peak catastrophe zones.

This is according to the latest data from MarketScout, which shows that some of the steepest insurance rate increases are being seen in property risks in catastrophe zones such as Florida wind and California wildfire.

Partly, this is an industry responding to recent catastrophe losses and resulting higher reinsurance prices, as primary insurers need to cover their costs and still make a margin.

But increasingly it feels like the primary industry is also responding to fears over changing frequency and severity trends, not least the perceived implications of climate change, as well as social factors that cause claims inflation.

All of which means the United States has seen steady and perhaps accelerating rate increases for property in peak catastrophe zones and this trend currently shows now signs of slowing.

MarketScout’s latest quarterly data, on the third-quarter of 2021, shows that commercial property insurance rates increased by an average of 9%.

However, the commercial property rate increases were far higher in catastrophe zones, with wildfire areas of California and wind-exposed coastal areas of Florida seeing Q3 rate increases of over 20%.

Similar trends are seen in primary insurance pricing, again with carriers struggling to cover loss costs, costs-of-capital, expenses including reinsurance, inflation and a margin, resulting in more steep increases.

Homes valued at under $1 million saw average rate increases across the United States of 4%, while homes valued at over $1 million saw higher increases of 7%.

“We always expect more aggressive homeowners pricing in the third quarter of any given year as insurers begin to incur losses from wind and wildfire claims,” explained Richard Kerr, CEO of MarketScout.

But he added that, “The national average rate increases for homeowners are not horrific; however, for those with homes in California and Florida rates can be up as much as 25 percent.”

Which is now starting to drive increasing coverage issues for homeowners in particularly catastrophe exposed regions, Kerr explained.

“California homes $20M and above with high wildfire exposures may not even be able to secure full coverage,” he explained, adding that “Rate increases of 40% are not unusual.”

Catastrophe exposed property insurance rates have been far-outpacing the average since at least the end of 2018.

The industry responded to its losses, but now with issues related to more frequent lower-severity weather catastrophes and social inflation, plus the climate change factor, top-of-mind, the trend continues and is perhaps accelerating in some areas.

It raises questions about reinsurance rate adequacy as well, given these primary rate increases are seen to be much larger than on the reinsurance side.

Of course, these are more localised, with many reinsurance treaties covering much wider areas.

But in the property catastrophe specific area of reinsurance, especially where coverage is sought for a specific peak peril zone, or state (such as Florida), this trend in primary pricing suggests reinsurance needs to keep rising too.

MarketScout forecast this a quarter ago.

The pace of primary increases also suggests that reinsurance rate has not been rising fast enough over the last few years and may continue to lag in some cases.

Higher rates is one route back to more sustainable profitability, in a world of frequent weather and climate related losses, plus loss-amplification and inflationary effects.

Primary carriers seem to understand this well and hence their push towards a perceived rate adequacy, The question is, does the reinsurance market?