US catastrophe exposed insurance rates rise up to 50% in 2023: MarketScout

Across the United States, last year, most of the fastest rising insurance rates for residential and commercial property have again been seen in the areas with the most significant exposure to catastrophe risks, according to MarketScout.

Reporting on insurance rates over the fourth-quarter of 2023, MarketScout’s data shows an overall rise continuing, but Richard Kerr, CEO of Novatae Risk Group which owns MarketScout, continues to highlight that catastrophe exposed property has been rising fastest, in terms of the cost to insure property.

Composite personal lines insurance rates were up by 4.61% across the full-year, bu the largest rate increases continue to be for catastrophe exposed homes.

“We continue to see the largest composite rate increases in homes over $1,000,000 in coverage A value, most likely because this includes all of the large homes in catastrophe exposed locations,” explained Richard Kerr, CEO.

Adding, “While the composite rate for large homes was 5.9% for 2023, some homeowners in tough areas or with prior losses are experiencing rate increases as high as 50%.”

The insurance industry continues to catch-up, in terms of charging what it and its models feel are risk commensurate rates for property in catastrophe exposed locations, it seems.

While primary insurance rates for property catastrophe risks keep rising in this way, it both means the carriers are keeping up with reinsurance price increases, or in some cases outpacing them.

Of course, the difference is that primary property insurance is priced in a far more localised manner than the carriers’ reinsurance treaties are assessed and priced.

So it’s far from an exact match, between escalating primary property rates and property cat reinsurance rates.

Homes valued under $1,000,000 in coverage A value averaged an insurance rate increase of 4.32% for 2023, MarketScout said, showing that the upward trend is across the US homeowners property insurance market.

In commercial insurance, the market had moderated in 2023, MarketScout explained.

With Kerr saying, “Property insurers are still cautious, but they are optimistic 2024 could yield good returns, especially with the rate increases of the last several years.”

But still, the commercial property insurance rate composite was up by 8.3% for the fourth-quarter of the year, showing the upwards trend is continuing here as well.

The data continues to show a need for capital to support the catastrophe exposed US property insurance market, be that through reinsurance and insurance-linked securities (ILS) instruments, or by backing underwriters more directly.

It also shows that catastrophe exposed property portfolios are going to have very high return potential going forwards, which may also continue to rise.

But the question going forwards is whether the volatility of losses can be manageable and whether the reinsurance tools available to insurers and underwriters are sufficiently focused on this volatility, to help moderate results and keep writing this kind of business attractive.