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Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance

Florida Insurers
Can Weather Another
Big Storm This Season

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Despite warnings from two leading insurance rating agencies that Hurricane Milton weakened or threatened Florida’s recovering home insurance market, the market “can manage losses” from the Category 4 storm “and are ready to cover yet another hurricane,” if one should come this season, according to industry experts who spoke with the South Florida Sun Sentinel.

AM Best and Fitch Ratings each issued reports last week warning that Milton could stretch liquidity of Florida-based residential insurers that are primarily focused on protecting in-state homeowners. But experts closer to Florida’s insurance industry cast doubt on those assertions. One reason is the two companies don’t rate most of the domestic Florida insurers whose financial strength they question, the Sun Sentinel reported.

While cautioning that loss estimates haven’t been released yet from catastrophe modelers, Florida market experts said the state’s insurers have sufficient reinsurance capital to weather not only hurricanes Debby, Helene, and Milton but another Milton-sized storm if one emerges during the latter portion of the 2024 Atlantic season.

Karen Clark, president of catastrophe modeler Karen Clark & Co., told the Sun Sentinel, “Florida insurers and the reinsurers that protect them use sophisticated tools to understand the probabilities of hurricane losses of different sizes.”

Joe Petrelli, president of Demotech – the only rating firm that reviews the financial health of most Florida-based property insurers – said insurers can purchase additional reinsurance capacity if they use up what they purchased to get them through the year.

“Carriers will have catastrophe reinsurance in place for another event, so it should not be an issue,” Petrelli told the Sun Sentinel.

“While we expect Milton to be a larger wind loss event compared to hurricanes Debby and Helene, we do not anticipate it to be near the level of insured losses caused by Hurricane Ian,” Mark Friedlander, Triple-I’s director of corporate communications said.

Ian was a Category 4 major hurricane that made landfall in Southwest Florida in September 2022 and caused an estimated $50 billion to $60 billion in private insured losses. The estimate accounted for up to $10 billion in litigated claims due to one-way attorney fees that were in effect at the time of the storm.

“The market is in its best financial condition in many years due to state legislative reforms in 2022 and 2023 that addressed the man-made factors which caused the Florida risk crisis – legal system abuse and claim fraud,” Friedlander said. “Florida residential insurers also have adequate levels of reinsurance to cover catastrophic loss events like Milton.”

Learn More:

Triple-I “State of the Risk Issues Brief”: Attacking Florida’s Property/Casualty Risk Crisis

Florida Homeowners Premium Growth Slows as Reforms Take Hold, Inflation Cools

Legal Reforms Boost Florida Insurance Market; Premium Relief Will Require More Time

It’s not too late to register for Triple-I’s Joint Industry Forum: Solutions for a New Age of Risk. Join us in Miami, Nov. 19 and 20.

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance

Removing Incentives
for Development From High-Risk Areas Boosts Flood Resilience

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(Photo by Jonathan Sloane/Getty Images)

By Lewis Nibbelin, Contributing Writer, Triple-I

Withdrawing federal subsidies in climate-vulnerable areas can deter development and promote disaster resilience, according to a recent Nature Climate Change study. The study found that these benefits extend beyond the targeted areas.

These findings underscore the utility of land conservation as hazard protection, as well as the critical role financial incentives play in driving – or obstructing – resilience.

A natural experiment

“Empirical research into this question is limited because few policy experiments exist where a clear comparison can be made of ‘treatment’ settings, where incentives for development have been removed, and ‘control’ settings, similar areas where such incentives remain,” the study states. “One such experiment does exist, however.”

The 1982 Coastal Barrier Resources Act (CBRA) rendered more than one million acres along U.S. coasts ineligible for various incentives, including access to flood insurance through the National Flood Insurance Program (NFIP). Though development in these high-risk areas remains legal, the CBRA shifts total responsibility onto property owners to manage that risk.

Decades later, areas under the CBRA have 83 percent fewer buildings per acre than similar non-designated areas, leading to higher development densities in less risky neighboring areas. Subsequent reductions in flood damages have generated hundreds of millions in NFIP savings per year – due not only to NFIP ineligibility in CBRA areas, but also to fewer and less costly flood claims filed in neighboring areas.

Neighboring areas benefit from the natural infrastructure provided by undeveloped wetlands, which can ease flood risk severity by impeding the rate and flow of flooding.

Housing demand a challenge

Despite the evident value of limiting development in high-risk areas, such limitations are challenging to implement during a nationwide affordable housing shortage. Navigating housing demands in tandem with a rise in natural disasters will require a coordinated effort on local, state, and federal levels.

One approach is FEMA’s Community Rating System (CRS), a voluntary program that incentivizes local floodplain management practices exceeding the NFIP’s minimum standards. Class 1 is the highest rating, qualifying residents for a 45 percent reduction in their premiums. Of the nearly 23,000 participating NFIP communities, only 1,500 participate in the CRS. Of those 1,500, only two have achieved the highest rating: Tulsa, Okla., and Roseville, Calif.

While high ratings are difficult to secure, investments in flood planning yield long-term gains via safer infrastructure and more affordable premiums, with discounts in lower-rated jurisdictions still equating to millions in savings.

CRS discounts are especially advantageous following NFIP’s Risk Rating 2.0 reforms and increased private-sector interest in flood risk. Both have contributed to a more representative and actuarially sound flood insurance market that sets rates based on property-specific risks, thereby raising the premiums of riskier property owners.

Concerns about effective climate risk mitigation strategies persist, however – especially in the wake of unprecedented destruction wrought by Hurricane Helene.

While NFIP reforms are making flood insurance more equitable, many homeowners – including many of those most impacted by Hurricane Helene – are unaware that flood coverage is not offered by a standard homeowners policy. Likewise, many believe that flood insurance is necessary only if required by their lenders, leaving inland residents more susceptible to costly flood damages.

This lack of common knowledge about insurance is not a failure of consumers – rather, it represents the insurance industry’s urgent need to provide greater outreach, public education, and stakeholder collaboration.

Incentivizing public-private collaboration has demonstrated success, so removing federal incentives from additional high-risk areas would require extensive multidisciplinary coordination to prevent inadvertently widening the insurance protection gap. Emerging approaches to risk mitigation and resilience – such as community-based catastrophe insurance, New York City’s recent parametric insurance flood pilot, and the nation’s first public wildfire catastrophe model in California – offer opportunities for fairer rates and targeted local resilience.

If paired with policies based on the CBRA, such innovations could help ensure that appropriate risk transfer occurs alongside substantial risk reduction.

Learn More:

Triple-I “State of the Risk” Issues Brief: Flood

Executive Exchange: Using Advanced Tools to Drill Into Flood Risk

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

Lee County, Fla., Towns Could Lose NFIP Flood Insurance Discounts

Miami-Dade, Fla., Sees Flood-Insurance Rate Cuts, Thanks to Resilience Investment

Milwaukee District Eyes Expanding Nature-Based Flood-Mitigation Plan

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

It’s not too late to register for Triple-I’s Joint Industry Forum: Solutions for a New Age of Risk. Join us in Miami, Nov. 19 and 20.

Auto Insurance, Insurers and the Economy, Legal Environment

Louisiana Is Least Affordable State for Personal Auto Coverage Across the South and U.S.

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Despite strong income growth that has helped improve personal auto insurance affordability in Louisiana, the state remains the least affordable among its Southern neighbors and the rest of the United States, according to the Insurance Research Council (IRC).

In 2022, the average annual premium expenditure per vehicle for auto insurance in Louisiana was $1,588, which is nearly 40 percent above the national average and nearly double that of the lowest-cost Southern state of North Carolina ($840), the IRC report says. Louisiana’s spending accounted for 2.67 percent of the median household income in the state.  

Florida’s average annual premium expenditures, at $1,625, exceed Louisiana’s, but the state is slightly more affordable; Florida’s higher median income results in a lower expenditure share of income (2.49 percent).  The Sunshine State is not included in the IRC report because it is the only no-fault jurisdiction among the Southern states, a fact that skews some comparisons.

All the Southern states had median household income below the overall U.S. figure, contributing to affordability challenges in the region as a whole. This was especially true for Mississippi, where the median income was 35 percent below the U.S. median.

In addition to low average household incomes, Louisiana’s affordability issues stem from such cost drivers as a higher tendency to file injury claims when an accident occurs, a high rate of underinsured motorists, and a high rate of claim litigation. Previous IRC claim research has pointed to high rates of attorney involvement in auto injury claims in the state.

In addition, Louisiana received the second-lowest score in a 2019 survey of businesses regarding the fairness of states’ litigation landscapes conducted by the U.S. Chamber of Commerce. It also is a perennial member of the “Judicial Hellholes” list published by the American Tort Reform Association (ATRA).

IRC – like Triple-I – is an affiliate of The Institutes.

Learn More:

Despite Improvements, Louisiana Is Still Least Affordable State for Auto Insurance

Who’s Financing Legal System Abuse? Louisianans Need to Know

Louisiana Still Least Affordable State for Personal Auto, Homeowners Insurance

Louisiana Litigation Funding Reform Vetoed; AOB Ban, Insurer Incentive Boost Make It Into Law

Louisiana’s Insurance Woes Worsen as Florida Works to Fix Its Problems

Louisiana Insurance Regulator Issues Cease & Desist Order to Texas Law Firm

It’s not too late to register for Triple-I’s Joint Industry Forum: Solutions for a New Age of Risk. Join us in Miami, Nov. 19 and 20.

Auto Insurance, Business Insurance, Homeowners Insurance, Industry Financials, Insurers and the Economy, Market Conditions

Personal Lines Underwriting Results Improve, Reducing Gap With Commercial Lines

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The U.S. property and casualty insurance industry experienced better-than-expected economic and underwriting results in the first half of 2024, according to the latest forecasting report by Triple-I and Milliman.  The report was released during a members-only webinar on Oct. 10.

The industry’s estimated net combined ratio of 99.4 represented a 2.3-points year-over-year improvement, with commercial lines continuing to outperform personal lines. Combined ratio is a standard measure of underwriting profitability, in which a result below 100 represents a profit and one above 100 represents a loss. 

Much of the overall underwriting gain was due to growth in personal lines net premiums written. Commercial lines underwriting profitability remained mostly flat.

“The ongoing performance gap between personal and commercial lines remains, but that gap is closing,” said Triple-I Chief Insurance Officer Dale Porfilio. “The significant rate increases necessary to offset inflationary pressures on losses are driving the improved results in personal auto and homeowners. With that said, the impact of natural catastrophes such as Hurricanes Helene and Milton threaten the improved homeowners results and are a significant source of uncertainty.”

During the webinar Q&A period, Porfilio provided insight on the potential impact of Hurricane Milton on the Triple-I 2024 net combined ratio forecast during the Q&A portion. One key figure regarding potential catastrophe losses is the impact on the 2024 net combined ratio forecast of adding one additional billion dollars of catastrophe losses. Each additional billion dollars of catastrophe losses is an impact of one tenth of a percent on the forecast.

Triple-I has loaded an estimate for catastrophe losses for the second half of 2024 based on historical experience, trends, economic projections, etc. prior to Milton, so there is no expectation of needing to add $30 billion to $40 billion – the recent estimate published by Gallagher Re.

If there was a need to add an additional $30 billion in catastrophe losses, that would be a +3.0-point impact on the forecast.

The net combined ratio for homeowners insurance of 104.9 was a six-point improvement over first-half 2023.  The line is expected to achieve underwriting profitability in 2026, with continued double-digit growth in net written premiums expected in 2025.   

Personal auto’s net combined ratio of 100 is 4.9 points better than 2023. The line’s 2024 net written premium growth rate of 14.5 percent is the highest in over 15 years. 

Jason B. Kurtz – a principal and consulting actuary at Milliman – elaborated on profitability concerns within commercial lines. Commercial lines 2024 net combined ratio remained relatively flat at 97.1 percent. Improvements in commercial property, commercial multi-peril, and workers compensation were offset by continued deterioration in commercial auto and general liability.

“Commercial auto expectations are worsening and continue to remain unprofitable through at least 2026,” he said. “General liability has worsened and is expected to be unprofitable through 2026.”

Michel Léonard, Triple-I’s chief economist and data scientist, said P&C replacement costs are expected to overtake overall inflation in 2025.

“P&C carriers benefited from a ‘grace period’ over a few quarters during which replacement costs were increasing at a slower pace than overall inflation,” Dr. Léonard said. “That won’t be the case in 2025.”  

It’s not too late to register for Triple-I’s Joint Industry Forum: Solutions for a New Age of Risk. Join us in Miami, Nov. 19 and 20.

Corporate Social Responsibility, Health & Safety, Insurance Industry

Insurers Help Victims
of Domestic Abuse With Financial Resilience

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By Loretta Worters, Vice President – Media Relations, Triple-I

When you think about domestic violence, insurance typically isn’t top of mind.  However, financial security and access to resources can make all the difference to victims when deciding to leave an abusive relationship. And insurance is an important component of financial planning that can help survivors move forward.

One frequently hidden form of abuse perpetrated within intimate partner relationships is economic or financial abuse, a common tactic abusers use to gain power and control. The forms of financial abuse may be subtle or explicit, but generally include tactics to conceal information, limit the victim’s access to assets, or reduce accessibility to the family finances. Financial abuse – along with digital, emotional, physical, and sexual abuse – includes behaviors to intentionally manipulate, intimidate, and threaten the victim to entrap that person. In some cases, financial abuse is present throughout the relationship; in others, financial exploitation becomes present when the survivor is attempting to leave or has left.

Research indicates that financial abuse occurs in 99 percent of domestic violence cases. Surveys of survivors reflect concerns over their ability to provide for themselves and their children – one of the top reasons for staying with or returning to an abusive partner. As with all forms of abuse, financial abuse occurs across all socio-economic, educational, and racial and ethnic groups.

Survivors struggling to get back on their feet may also be forced to return to their abuser.  That’s why it’s so important survivors understand how insurance works and what a critical role it can play in gaining financial freedom and economic self-sufficiency.

Since 2005, The Allstate Foundation has been committed to ending domestic violence through financial empowerment by helping to provide survivors with the education and resources needed to achieve their potential and equip young people with the information and confidence they need to help prevent unhealthy relationships before they start. 

The Allstate Foundation offers a Moving Ahead Curriculum, a five-module program that helps prepare survivors as they move from short-term safety to long-term security. Modules of the curriculum include: Understanding Financial Abuse; Learning Financial Fundamentals; Mastering Credit Basics; Building Financial Foundations and Long-Term Planning.

In support of Domestic Violence Awareness Month, Triple-I offers financial strategies to protect victims before and after leaving an abusive relationship. They include securing financial records, knowing where the victim stands financially, building a financial safety net, making necessary changes to their insurance policies, and maintaining good credit. 

The National Coalition Against Domestic Violence (NCADV) reports that 10 million people are physically abused by an intimate partner each year, and 20,000 calls are placed to domestic violence hotlines each day. In addition, 85 percent of women who leave an abusive relationship return because of their economic dependence on their abusers. Furthermore, the degree of women’s economic dependence on an abuser is associated with the severity of the abuse they suffer.

“Home is frequently a dangerous place for survivors of domestic violence, and remote work exacerbates the circumstances, due to the abusers’ ability to further control,” said Ruth Glenn, author, survivor, and leader in the movement to end domestic violence for over 30 years. “Tactics abusers use include ruining the victim’s credit, as well as financial abuse,” said Glenn, who is president of Survivor Justice Action (SJA) and the former CEO of the NCADV.

Digital abuse is another tactic used by abusers.  It can come in many forms, with partners reading emails, checking texts and locations of social media posts, controlling who you can connect and speak with on social media; and keeping constant tabs on you through social networks, spyware, or tools like location sharing; and stealing your passwords, which can also impact you financially.

“One of the most powerful methods of keeping a survivor trapped in an abusive relationship is not being able to support themselves financially,” Glenn explained. “That’s why insurance and financial education are crucial,” she said.  “Education can save a life.”

Emerging Risks, Insurance Industry, Insurance News

Multi-Family Affordable Housing Market Challenged by Surges in Insurance Premiums

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urban apartment buildings

With ​​nearly half of all homes in the United States at risk of “severe or extreme” damage from events like flooding, high winds, and wildfire, the perfect storm of climate risk and legal system abuse creates obstacles for homeowners. It also threatens a more financially vulnerable segment of the housing market, as increased premiums and waning coverage for affordable housing providers can put millions of renters at risk of becoming rent-burdened (paying more than 30 percent of gross monthly income in gross monthly rent) or unhoused.

In June of this year, about two dozen real estate, housing, and nonprofit organizations — self-describing as a “broad coalition of housing providers and lenders” —  wrote a letter to Congress and the Biden administration urging them to address the issue of property insurance affordability. Although the coalition declared its intent to represent all stakeholders in the housing market, it called attention to special concerns of affordable housing providers and renters.

The letter referenced an October 2023 survey and report commissioned by the National Leased Housing Association (NLHA) and supported by other affordable housing organizations. The survey involved more than 400 housing providers that operate 2.7 million rental units — 1.7 million of which are federally subsidized. Findings mentioned in the letter and report about the affordable housing market include:

– Rate increases of 25 percent or more in the most recent renewal period for one in every three policies for affordable housing providers.

– Over 93 percent of housing providers said they plan to mitigate cost increases, with three most commonly cited tactics: increasing insurance deductibles (67 percent), decreasing operating expenses (64 percent), and increasing rent (58 percent).

– Respondents cited limited markets and capacity as the cause for most premium increases, followed by claims history/loss and renter population.

According to the U.S. Department of Housing and Urban Development (HUD) guidelines, affordable housing is generally defined as housing for which the occupant is paying no more than 30 percent of gross income for housing costs. These units are often regulated under various regional and nationwide programs, which typically offer some form of government subsidy to the property owners – usually either through tax credits, government-backed financing, or direct payments. Rising insurance premiums for affordable housing properties have come at a particularly challenging time for both renters and affordable housing property owners, a large share of which are non-profit organizations.

Census Data indicates that in total renters comprise around 36 percent, or about 44.2 million of the 122.8 million Census captured households. The number of rent-burdened households nationwide has hit an all-time high. The latest rental housing market figures, taken from a report issued by the Joint Center For Housing Studies Of Harvard University, counts 22.4 million rent burdened households in this category, amplifying the dire need for more affordable units. That report also reveals the proportion of “cost-burdened renters rose to 50 percent, up 3.2 percentage points from 2019.” 

Additionally, homelessness increased 12 percent in 2023. More than 650,000 people were unhoused at some point last year — the highest number recorded since data collection began in 2007. A Wall Street Journal analysis reveals the most recent counts for 2024 are already up 10 percent, putting the total number of unhoused persons on track to exceed last year’s amount.

Meanwhile, the affordable housing stock is aging and the cost of debt to acquire or build multifamily properties has risen, too. As interest rates have been high in recent years, developers must offer investors greater returns than treasury notes. The problem is complex, but the outcomes can be brutally straightforward.

Higher insurance premiums on rented properties increase costs, which, in turn, get passed on to renters. Market-rate landlords can usually raise rents to cover the increasing costs of capital and insurance premiums. However, affordable housing providers are locked into rents set by the government. These amounts are tied to regional incomes, which can be depressed by wage stagnation. Thus, renters who rely on affordable housing can experience the impact of rising premiums in the form of decreased services and lapsed maintenance (as housing providers dip into other parts of the operating budget to make up the shortfall) or a decrease in the number of units on the market as housing providers extract units or leave the market.

In July of this year, HUD convened a meeting with various stakeholders to discuss policies and opportunities to address this and related challenges while managing potential risks to the long-term viability of affordable housing. HUD has modified its insurance requirements for apartment buildings with government-backed mortgages, now allowing owners to set their deductible for wind and storm events as high as $475,000, up from $250,000. This tactic may reduce premiums but can also raise out-of-pocket costs after a storm or severe climate event. Another approach in progress is the revision of HUD’s methodology for calculating the Operating Cost Adjustment Factors (OCAF), parameters for annual percentile increases in rent, for eligible multifamily properties to better account for increasing insurance costs.

Triple-I is committed to advancing conversations with business leaders, government regulators, and other stakeholders to attack the risk crisis and chart a path forward. To join the discussion, register for JIF 2024. Follow our blog to learn more about trends in insurance affordability and availability across the property and casualty market.

Industry Awards & Events, Insurance Industry, Risk Management

Predict & Prevent Podcast Honored By Inclusion Among ‘Insurance Luminaries’

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The Institutes’ Predict & Prevent® podcast has been named to PropertyCasualty360’s Insurance Luminaries Class of 2024 in the category of Risk Management Innovation. This annual recognition celebrates people and initiatives driving meaningful progress within the insurance sector, highlighting key advancements and forward-thinking approaches.

The podcast explores new ways to respond to some of the biggest risk challenges facing society today by working to better predict and prevent losses before they occur. This proactive approach is crucial in a rapidly changing world in which traditional risk-management methods – which focus on risk financing and responding after a loss – are becoming less sufficient.

By exploring new technologies and resilience strategies, the podcast addresses the urgency of mitigating current risk landscapes and paves the way for future advancements in risk prevention.

The Institutes is a nonprofit organization made up of diverse affiliates – including Triple-I – that educate, elevate, and connect people in the essential disciplines of risk management and insurance.

As the podcast rounds out its second year, its focus remains to empower the risk-management and insurance community with actionable insights and forward-thinking strategies. Those interested in exploring innovative technology and resilience solutions can listen to podcast episodes, access articles, and subscribe to the Predict & Prevent newsletter here.

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods

CSU: Post-Helene, 2 More “Above Normal” Weeks Of Storm Activity Expected

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(Photo by Joe Raedle/Getty Images)

As work continues to address the harm inflicted by Hurricane Helene, researchers at Colorado State University (CSU) warn that the next two weeks “will be characterized by [tropical storm] activity at above normal levels.” 

The CSU researchers define “above normal” by accumulated cyclone energy (ACE) of more than 10. This level of hurricane intensity has been reached in less than one-third of two-week periods in early October since records have been kept.

Hurricane Kirk, they wrote, is “extremely likely” to generate more than 10 ACE during its lifetime in the eastern/central Atlantic. Tropical Depression 13 has just formed and is likely to generate considerable ACE in its lifetime across the Atlantic. The National Hurricane Center is monitoring an additional area for formation in the Gulf of Mexico that should be monitored for potential U.S. impacts.

“Hurricane Kirk is forecast to track northwestward across the open Atlantic over the next few days, likely becoming a powerful major hurricane in the process,” said CSU research scientist and Triple-I Non-resident Scholar Phil Klotzbach. “The system looks to generate approximately an additional 20 ACE before dissipation, effectively guaranteeing the above-normal category for the two-week period.”

With more than 160 people confirmed dead in Florida, Georgia, South Carolina, North Carolina, Virginia, and Tennessee,  Helene is now the second-deadliest hurricane to strike the mainland United States in the past 55 years, topped only by Hurricane Katrina in 2005.

Reinsurance broker Gallagher Re predicts that private insurance market losses from Helene will rise to the mid-to-high single-digit billion dollar level, higher than its pre-landfall forecast of $3 billion to $6 billion, according to Chief Science Officer and Meteorologist Steve Bowen.

As always – and with particular urgency in the wake of Helene’s devastation – Triple-I urges everyone in hurricane-prone areas to stay informed, be prepared, and follow the instructions of local authorities. We also ask that people be mindful of the potential for flood danger far inland, as reflected in the experiences of many non-coastal communities during Hurricane Ida and Helene.

Learn More:

How to Prepare for Hurricane Season

Triple-I “State of the Risk” Issues Brief: Hurricanes

Hurricanes Don’t Just Affect Coasts; Experts Say: “Get Flood Insurance”

Business Insurance, Business Risk, Insurers and the Economy, Market Conditions

Strike’s Duration Will Determine Impact on P/C Insurance Industry

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By Michel Léonard, Ph.D., CBE, Chief Economist and Data Scientist, Triple-I 

The International Longshoremen’s Association (ILA) went on strike on Tuesday, Oct 1. The strike is expected to affect more than 20 ports along the Eastern Seaboard and Gulf Coast, including the ports of New York and New Jersey, Baltimore and Houston.  

Focusing specifically on the strike’s impact on the property/casualty industry – and given the specific goods transiting through those ports – the impact will be most direct for homeowners, personal and commercial auto, and commercial property. More specifically, the strike may lead to increased replacement costs and delays in the supply and replacement of homeowners’ content, such as garments and furniture; of European-made vehicles and vehicle replacement parts; and of concrete, especially for commercial construction.  

However, the strike’s impact will be significantly mitigated by current inventories for each of the impacted insurable goods and the tightness of related just-in-time supply chains. At minimum, Triple-I estimates, the strike would have to last one to two weeks to trigger further sustained increases in P/C replacement costs or accelerate a current slowdown in P/C underlying growth.   

 Another way the insurance industry would be affected is from losses from coverage protecting against adverse business costs of events, such as strikes. These coverages include, but are not limited to, business interruption, political risk, credit, supply-chain insurance, and some marine and cargo. However, most such policies have waiting periods ranging from five to 10 days, and then deductibles, before payment is triggered. As a result, losses for those lines are likely to be limited if the strike lasts less than one to two weeks.  

 Using a one to two-week timeline is helpful: The last major longshoremen’s strike in the United States – at the port of Long Beach, Calif., in 2021 – lasted one week.   

Emerging Risks, Insurance Industry, Market Conditions

Prodigious growth continues for the excess and surplus market, but how long will it last?

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The Excess and Surplus (E&S) market has grown for five consecutive years by double-digit percentage rates. While expansion appears to have slowed, ample growth likely to continue if major trends persist, according to Triple-I’s latest issue brief, Excess and Surplus: State of the Risk.

As reported by S&P Global Intelligence, total premiums for 2023 reached $86.47 billion, up from $75.51 billion in 2022. The growth rate for direct premiums in 2023 climbed to 14.5 percent, down from the peak year-over-year (YoY) increase of 32.3 percent in 2021 and 20.1 percent in 2022. The share of U.S. total direct premiums written (DPW) for P/C in 2023 grew to 9.2 percent, up from 5.2 percent in 2013.

The brief summarizes how these outcomes are driven by the niche segment’s capacity to take advantage of coverage gaps in the admitted market and quickly pivot to new product development in the face of emerging or novel risks. Analysis and takeaways, based on data from US-based carriers, highlight dynamics that may support continued market expansion:

  • The rising frequency of climate disasters and catastrophes that overwhelm the admitted market
  • The increasing number and amount of outsized verdicts (awards over $10 million)
  • The sustainability of amenable regulatory frameworks
  • Outlook for the reinsurance segment

These factors can also converge to enhance or aggravate conditions.

For example, some states, such as Florida and California, are dealing with significant obstacles to P/C affordability and availability in the admitted market posed by catastrophe and climate risk while also experiencing large respective shares of outsized verdict activity. Also, 13 of the 15 largest U.S. E&S underwriters for commercial auto liability experienced a YoY increase in 2023 direct premiums written. In contrast, eight of the largest 15 underwriters of commercial auto physical damage coverage experienced a decline. Given 2023 research from the Insurance Information Institute showing how inflationary factors from legal costs amplify claim payouts for commercial auto liability, it appears that E&S is flourishing off the struggles of the admitted market.              

At the state level, the top three states based on E&S property premiums as portion of the total property market were Louisiana (22.7 percent), Florida (21.1 percent), and South Carolina (19.4  percent) in 2023. The states experiencing the highest growth rates in E&S share of property premiums were South Carolina (9.0 percent), California (8.8 percent), and Louisiana (8.3 percent).

Since the publication of Triple-I’s brief, AM Best released its 2024 Market Segment Report on U.S. Surplus Lines. One of the key updates: after factoring in numbers from regulated alien insurers and Lloyd’s syndicates, the E&S market exceeded the $100 billion premium ceiling for the first time, climbing past $115 billion. The share size in the P/C market has more than tripled, from 3.6 percent total P/C DPW in 2000 to 11.9 percent in 2023. Findings also indicate that DPW is concentrated heavily within the top 25 E&S carriers (ranked by DPW), with about 68% of the total E&S market DPW coming from this group.

The E&S market typically provides coverage across three areas:

  • Nonstandard risks: potential liabilities that have unconventional underwriting characteristics
  • Unique risks: admitted carriers don’t offer a filed policy form or rate, or there is limited loss history information available
  • Capacity risks: the customer to be insured seeks a higher level of coverage than most insurers are willing to provide

Thus, E&S carriers offer coverage for hard-to-place risks, stepping in where admitted carriers are unwilling or unable to tread. It makes sense that the policies typically come with higher premiums, which can boost DPW.

However, the value proposition for E&S policyholders hinges on the lack of coverage in the admitted market and the insurer’s financial stability – especially since state guaranty funds don’t cover E&S policies. Therefore, minimum capitalization requirements tend to higher for E&S than for admitted carriers. Ratings from A&M Best over the past several years indicate that most surplus insurers stand secure. Robust underwriting and strong reinsurance capital positions will play a role in the market’s capacity for continued expansion.

To learn more, read our issue brief and follow our blog for the latest insights.

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