US property insurance rates continued to rise across both commercial and personal lines in the second-quarter of 2021, with MarketScout warning that catastrophe exposed property may see stronger rate increases later in the year, depending on the catastrophe loss burden for the industry.
The last quarter of 2020 saw property insurance rates surging in catastrophe exposed zones, led by hurricane exposed property in Florida and wildfire exposed property in California.
The second-quarter of 2021 saw the trend continue, as US property insurance rates rose across both the homeowners and commercial segments of the market, while catastrophe exposed regions continue to see some of the steepest increases.
Insurance and reinsurance risk capital providers continue to try and get rates to a level where they are risk commensurate, so sufficient to cover the all-important cover loss costs, cost-of-capital, expenses and a margin.
But for those regions of the United States where catastrophe exposure is a factor and where major losses have occurred over the last decade, both the insurance and reinsurance market continue to push for more rate, to try and get to a risk commensurate level.
On the commercial side of P&C insurance, in Q2 2021 property rates were one of the segments where additional rate acceleration was seen, as commercial property insurance rose by 9.6%, according to MarketScout.
That’s up by one percentage point over Q1 2021’s 8.6% rate increase for commercial property business.
Business interruption rates also increased, from a 6% level in Q1 to 7% for Q2 2021, as carriers continue to try to get this important coverage back to rate adequacy as well.
Other areas of commercial insurance moderated somewhat in the second-quarter, but Richard Kerr, CEO of MarketScout explained, “We monitor trends. This quarter there was a slight trend towards rate moderation, but this could be an aberration. Let’s see how the rest of the year plays out before we make any predictions about market rates moderating.”
Highlighting the continued challenges faced by property owners in peak catastrophe zones, Kerr added, “We are now entering hurricane season and this fall we will be in wildfire season. Property rates continue to rise and could get even higher.”
As we noted earlier today, the wildfire season is already off to a damaging start, even before the accepted peak of that season begins.
The hurricane season remains forecast to be active again, with the sixth named tropical storm Fred forming late yesterday and now heading towards Florida.
On the personal lines, so residential or homeowners property insurance side of the market, rate increases did taper off a little in Q2 2021, even for the higher value properties.
However, we understand that catastrophe exposed primary property lines in general have held up much better in Q2 and there is an expectation this will continue, as insurers push further for rate adequacy.
In peak catastrophe zones like Florida, insurers have not been able to push through the rate increases they have wanted due to regulation, so the increases are likely to persist as a result.
Further catastrophe activity will only accelerate these trends, for the property that is most exposed to peak perils and secondary perils of rising importance to the insurance industry.
“Personal lines buyers are being assessed a second quarter rate increase of 4.75 percent as compared to 5.6 percent in the first quarter of 2021,” explained Richard Kerr. Who went on to warn, “However, we are just entering the hurricane and wildfire seasons over the next five or six months so rates could change quickly. An increasing number of homeowners are using non-admitted insurers. When non-admitted insurers are hit with significant losses, they can adjust rates very quickly.”
Conditions in the primary insurance market remain a key driver for reinsurance pricing, with insurers seeking to achieve rate adequacy, while also paring back their books in some catastrophe zones.
As a result, catastrophe and climate risk exposed areas of the US are seeing some of the steepest and most consistent increases, with the reinsurance market following-suit.
Alongside other factors stimulating pricing in primary and reinsurance lines, the continued momentum in primary property pricing should help to keep reinsurance firm, at least for the coming few quarters.
Recent catastrophe activity in Europe may also become a similar driver, as re/insurers absorb the implications of rising rainfall, storm and flood related losses across the region.
The risk appetite of larger players and new capital providers could serve to slow or halt this rate momentum in its tracks. But with the increasing focus on climate risk and ensuring you are adequately compensated for taking on climate exposed risks, it seems the trajectory of catastrophe exposed property rates may not change dramatically for the foreseeable future.