While commercial and personal property insurance rates rose broadly in the second-quarter of 2020, it is the catastrophe exposed regions and segments of the business that are rising fastest, according to MarketScout.
There remains a capacity related trend to some of the price rises, as insurers continue to pull-back or restrict capacity in certain of the most catastrophe exposed areas in the U.S.
At the same time, some market segments, such as surplus lines commercial property, are also moving fastest, as parts of the market where significant capacity had been exhausted in recent years by catastrophe losses.
MarketScout said that, on average, commercial property insurance rates in the United States were up by 5%, while unsurprisingly commercial business interruption policies rose faster at 6% increase in the second-quarter of this year.
The increases in commercial property insurance are a slight acceleration on the rates seen in Q1.
Richard Kerr, CEO at MarketScout explained on the segments moving the fastest, “Almost all US insurers are assessing rate increases; however, surplus lines insurers are more aggressive as rate increases for the second quarter were up 9 percent.
“Drilling down even further, cat-exposed surplus lines property accounts averaged rate increases of 12 percent.”
Catastrophe exposed U.S. E&S property business is a significant driver of reinsurance rate as well, also an area of interest for some insurance-linked securities (ILS) funds and investors.
Habitational rates were up an average of 7% in the period, while on an account size basis the whole market was up more than 4%, with mid and jumbo sized accounts seeing the fastest increases in the commercial lines segments, MarketScout said.
In personal lines, MarketScout said that the Covid-19 pandemic is definitely affecting rates.
Overall, personal lines U.S. insurance rates rose by an average of 3.5% in Q2, the same rate as the prior quarter.
High-value homeowners policies rose by more than 4% on average, but in some regions the acceleration of rates has been much faster again in the last quarter.
“Underwriters continue to assess significant rate increases for high value homes in catastrophe prone areas, particularly in California and Florida,” MarketScout explained.
CEO Kerr explained how this is affecting the marketplace, “Every member laments on the struggles of placing wind in Southern Florida and brush in exposed areas of California during our Council for Insuring Private Clients (CIPC) board meeting calls. Many insurers are writing excess of very large deductibles, if at all. Insureds are balking at some of the huge rate increases and as a result, there are probably more self-insured high valued homes in the US today than at any time in the past forty years.”
At the same time, underwriters are also assessing the risk of insureds with more than one home, as a result of the Covid-19 pandemic.
Kerr explained this, “In our last report, we anticipated insurers would be wary of covering secondary homes because of the lack of attention they would receive. If you can’t travel and everyone is on lock down, the assumption was secondary home would not be monitored as closely and small maintenance items may create large claims. However, we may have gotten it backwards, at least for the summer of 2020. The majority of homeowners have retreated to their secondary home in the mountains or on the beach to wait out COVID-19. So, the primary residence may be more exposed rather than the secondary.”
While property rates are rising everywhere, the most catastrophe exposed regions, which are the regions where insurance and reinsurance capital has been most loss-affected in recent years, are seeing the fastest increases again.
In particular, catastrophe exposed areas of California and Florida are reported by MarketScout to have seen homeowner rate increases of between 7% and 20% in the second-quarter of 2020, suggesting primary rates are at least still keeping pace with reinsurance, perhaps still outpacing in some cases.
The continued upwards momentum in primary insurance rates, particularly for catastrophe exposed properties (both commercial and personal), is likely to help sustain the movement in reinsurance as well.
All of which suggests the market may be on its way to finding a new pricing floor, at least for the peak catastrophe zones, which will be welcomed across reinsurance and ILS.