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

Resilience Investments Paid Off in Florida
During Hurricane Milton

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By Lewis Nibbelin, Contributing Writer, Triple-I

Babcock Ranch – a small community in southwestern Florida dubbed “The Hometown of Tomorrow” – made headlines for sheltering thousands of evacuees and never losing power during Hurricane Milton, which devastated numerous neighboring cities and left more than three million people without power.

Hunters Point, a subdivision on Florida’s Gulf Coast, remained similarly unscathed during both Hurricanes Helene and Milton. Though the development is only two years old, it’s already been through four major hurricanes. Its homes were designed with an elevation high enough to avoid severe flooding and materials that make them as sturdy as possible in high winds. When the power goes out, each home turns to its own solar panels and battery system.

For residents of both communities, this news comes as no surprise; their flood-resistant infrastructure and solar panel power systems have helped them survive several storms and hurricanes with only minor damages, demonstrating the utility of disaster resilience planning.

Such planning is expensive to implement. Homes in either community can run for over a million dollars. But, as the combined costs of Hurricanes Helene and Milton rise to the tens of billions, it’s hard to overstate the long-term benefits. Every dollar invested in disaster resilience could save 13 in property damage, remediation, and economic impact costs, suggesting risk mitigation and recovery strategies will become even more essential as natural catastrophe severity increases.

Incentivizing investment

The National Flood Insurance Program (NFIP) Community Rating System (CRS) – a voluntary program that rewards homeowners with reduced premiums when their communities invest in floodplain management practices that exceed NFIP minimum standards – aims to encourage resilience. Class 1 is the program’s 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 – Tulsa, Okla., and Roseville, Calif. – have achieved the highest rating.

High ratings are difficult to secure and maintain. Homeowners in Lee County, which borders Babcock Ranch, nearly lost their discounts earlier this year due to improper post-Hurricane Ian monitoring and documentation within flood hazard areas.

Discounts in lower-rated jurisdictions, however, still equate to large premium reductions. Miami-Dade County, Fla., for instance, earned a Class 3 rating after extensive stormwater infrastructure upgrades, saving the community an estimated $12 million annually. Residents sustained minimized flooding from Hurricane Milton under these improvements, further justifying their cost.

Local mitigation efforts offer targeted resilience solutions and resources to alleviate community risks. The insurance industry-funded Strengthen Alabama Homes provides homeowners grants to retrofit their houses along voluntary standards for constructing buildings resistant to severe weather. Completed retrofits reduce post-disaster claims and qualify grantees for substantial insurance premium discounts, prompting flood-prone Louisiana to replicate the program.

Other nature-based planning exploits local flora as a source of natural hazard protection. Previous studies support conserving natural wetlands and mangroves to impede the rate and flow of flooding, leading many communities – including Babcock Ranch, which is 90 percent wetlands – to invest in green infrastructure. Reforestation and wetland restoration projects undertaken by the Milwaukee Metropolitan Sewerage District (MMSD) also promise to store or capture millions of gallons of storm and flood water, enabling risk management alongside improved quality of life for citizens.

Most resilience projects are impossible to fund or operate without stakeholder partnerships and advanced data and analytics. Insurers, who have long assessed and measured catastrophe risk utilizing cutting-edge data tools, are uniquely positioned to confront these evolving risks and present a framework for successful preemptive mitigation.

Learn More:

Hurricane Helene Highlights Inland Flood Protection Gap

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

Executive Exchange: Using Advanced Tools to Drill Into Flood Risk

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

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

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

Coastal New Jersey Town Regains Class 3 NFIP Rating

Catastrophes, Disaster Preparedness, Disaster Resilience

Hail: The “Death by 1,000 Paper Cuts” Peril

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By Lewis Nibbelin, Contributing Writer, Triple-I

Earlier this year, baseball-sized hailstones in Denver totaled vehicles and pummeled homes and businesses during the second-costliest hailstorm in Colorado history, equating to billions in damages. Melon-sized stones hit Texas the same month, downing power lines and requiring snow plows to reopen roads.

Hail – a sub-peril of severe convective storms (SCS), which also include thunderstorms with lightning, tornadoes, and straight-line winds – is among the most destructive natural catastrophes in the United States, behind as much as 80 percent of SCS claims in any one year. Yet hailstorms remain ill-monitored and highly unpredictable due to a lack of public and industry attention.

“These are death-by-1000-paper-cut perils,” explained Triple-I’s Non-Resident Scholar Dr. Victor Gensini, meteorology professor at Northern Illinois University and leading expert in convective storm research, in an interview for the All Eyes on Research podcast. “In general, we’re seeing hail on 200 out of 365 days of the year.”

While individual SCS events generating losses on the multi-billion-dollar scale of Hurricane Andrew or Katrina don’t happen, over the course of a given year the losses add up quickly.

SCS, which are rising in frequency and severity – accounted for 70 percent of insured losses globally the first half of 2024, at a billion-dollar sum 87 percent higher than the previous decade average. And in 2023, U.S. insured SCS-caused losses exceeded $50 billion for the first time on record for a single year, propelled by thousands of major hailstorms impacting more than 23 million homes.

Gensini – who was motivated to study atmospheric science after a tornado impacted his high school – shifted his focus away from tornadoes “because hail is way more common across the United States every year, and it has a much larger socioeconomic impact – whether you’re talking about agricultural losses…or just rooftop damage to your asphalt shingles,” he told host and Triple-I Economic Research Analyst Marina Madsen.

“When you take a step back and look at the thunderstorm perils producing the greatest number of insured losses, it’s hail.”

Urbanization and inflation drive these losses, as more people populate disaster-prone areas and the value of their assets and the costs to repair them have increased. The expanding presence of solar farms, spread throughout flat, originally uninhabited plains, are especially susceptible to SCS damage, with one 2019 hailstorm causing $70 million in damages to a solar energy project in Texas.

Another explanation for greater hail-related losses is our warming climate. A Climate and Atmospheric Science study led by Gensini projects that, while higher temperatures will melt more hailstorms overall, increasingly large hailstones will become more common. Stronger updrafts fueled by higher temperatures can suspend stones in the air for longer, spurring further growth.

Such trends do not bode well for insurance premium rates, but upcoming research efforts promise actionable insight into hailstorm detection and prediction. The In-situ Collaborative Experiment for the Collection of Hail in the Plains – or ICECHIP – will send Gensini and several other researchers into the Great Plains to chase and collect granular data from hailstorms next year. Backed by the National Science Foundation with more than $11 million in funding, the field study aims to reduce hail risk through improved hailstorm forecasting, enabling residents to better protect themselves and their belongings before a hailstorm touches down.

A newer initiative – the Center for Interdisciplinary Research on Convective Storms, or CIRCS – is a prospective academic industry consortium to develop multidisciplinary research on SCS risk, fostering resilience and recovery strategies informed by diverse stakeholder partnerships.

“As you can imagine, the greatest interest right now in our research is in the insurance and reinsurance verticals,” Gensini said. “Hopefully, as we continue to build relationships…the [CIRCS] center will serve as a hub for information and knowledge creation for industry members. It’s a really unique consortium and a lot of potential lines of business could benefit from it.”

Listen to Podcast: Spotify, Audible, Apple

Insurance Industry

US Consumers See Link Between Attorney Involvement in Claims and Higher Auto Insurance Costs: New IRC Report

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According to a new survey conducted by the Insurance Research Council (IRC), most consumers believe attorney advertising increases the number of claims and lawsuits and the cost of auto insurance.

The report, Public Opinions on Attorney Involvement in Claims, analyzes consumer opinions on attorney involvement in insurance claims and expands prior research. Overall, 60 percent of 2000 respondents in this latest nationwide online survey from IRC said that attorney advertising increases the number of claims, and 52 percent said that advertising increases the cost of insurance. Most respondents (89 percent) reported seeing attorney advertising in the past year, and about half reported seeing an increase in the amount of attorney advertising.

The IRC endeavored to gauge perceptions of attorney advertising and its impact on the cost of insurance, consumer awareness and understanding of litigation financing practices, and decisions about consulting attorneys about auto insurance claims. The main lines of inquiry in the survey revolved around:

  • How has the public experienced attorney advertising, and what do they think of the impact?
  • Are they aware of litigation financing, and after being given a description, what do they think of it?
  • Would they be more likely to hire an attorney to help settle an insurance claim or to settle directly with an insurer?
  • What was their previous history with auto insurance claims and their experience with consulting a lawyer to help settle an injury claim?

Results indicate that consumers are exposed to more attorney advertising across most mediums – particularly in outdoor ads, with auto accident advertisements being the most prevalent medium – compared to three years ago. While billboard advertising has experienced the most growth over the past three years, TV is the most recalled medium, with 65 percent of respondents recalling seeing TV ads in the past year.

The study reveals the awareness of litigation financing has risen significantly, but most respondents remain neutral in their opinions. Nonetheless, results show consumers want transparency around the involvement of third-party litigation funding in a case. When asked, “To what extent do you agree or disagree that the participants in a lawsuit should be informed when outside investors are financing the litigation,” 69 percent said they agree.

How might increased attorney advertising fuel legal system abuse?

IRC’s findings support a “significant statistical correlation between whether respondents consulted an attorney and their exposure to advertising. Among those who reported seeing attorney advertising, 74 percent consulted an attorney, compared to 48 percent among those who had not seen attorney advertising.”

The American Tort Reform Association (ATRA) estimates that in 2023, over $2.4 billion was spent on local legal services advertising through television, radio, print ads, and billboards across the United States.  Meanwhile, only 47 percent of respondents in a 2023 American Bar Association (ABA) survey said their firm had an annual marketing budget – a decline from 57 percent in 2022. About 80 percent of the solo practitioners in the study did not have a marketing budget, and only 31 percent of firms of 2-9 lawyers had one. 

Therefore, excessive advertising isn’t universal across the legal industry, and the saturation of advertising channels can more likely be attributed to large firms reaping substantial profits from certain practice areas or firms bolstered by third-party litigation financing. In many instances, both of these conditions factors may be involved. For example, data that ranks the leading legal services advertisers in the United States in 2023 by spending reveals a list dominated by large law firms and attorney conglomerates specializing in mass tort, accident, and personal injury litigation.

The Wall Street Journal reported earlier this year on the ties between advertising surge and the growth in mass product-liability and personal-injury cases, along with the rising involvement from a particular segment of the investment industry in these types of litigation. Nearly 800,000 television advertisements for mass tort cases ran in 2023, costing over $160 million. According to the WSJ, the ads shown most frequently that year included those soliciting individuals who might have been exposed to contaminated water at the Camp Lejeune Marine base. This particular mass tort ranks high on the previously mentioned list of top spenders.

The average dollar amount of third-party litigation funder (TPLF) loans provided to individual law firms ranges from $20 million to $100 million. Given that prospective returns for TPLF loans reportedly reach as high as 20 percent for the riskier mass tort litigation, connecting the surge in advertising for recruiting plaintiffs to the TPLF cash stream may not be such a big leap. Yet, over the years, studies have shown that attorney involvement can increase claims costs and the time needed to resolve them, even while reducing value for claimants.

Insurance claims litigation is a growing concern in several states, including Georgia, Louisiana, and Florida, threatening coverage affordability and availability. In Georgia, for example, data indicates that auto coverage affordability for Georgians has been waning faster than in any other state. An August 2024 report, Personal Auto Insurance Affordability in Georgia, issued by IRC, ranked Georgia 47th in terms of auto insurance affordability, while the state tops the most recent list of places that the American Tort Reform Foundation (ATRF) believes judges in civil cases systematically apply laws and court procedures generally to the disadvantage of defendants.

Triple-I and key insurance industry stakeholders define legal system abuse as policyholder or plaintiff attorney practices that increase costs and time to settle insurance claims, including situations when a disputed claim could have been fairly resolved without judicial intervention. Insurers’ legal costs for claims can mount with the increasing number of lawsuit filings, extended litigation, and outsized jury awards (awards exceeding $10 million).

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.

Auto Insurance, Industry Financials, Insurers and the Economy, Legal Environment, Market Conditions

Inflation Continues
to Drive Up Consumers’ Insurance Costs

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By William Nibbelin, Senior Research Actuary, Triple-I

Insurance is priced to reflect the underlying risk of every policy. When more claims are filed and the average amount paid of those claims increases, insurance becomes more expensive. A measure of underwriting profitability for insurance carriers is the combined ratio calculated as losses and expense divided by earned premium plus operating expenses divided by written premium. A combined ratio over 100 represents an underwriting loss. When expected losses increase, an insurance carrier must increase premiums by raising rates to maintain a combined ratio under 100.

Commercial auto insurance has recorded a net combined ratio over 100 nine times out of 10 between 2014 and 2023, and, according to the latest forecasting report by Triple-I and Milliman, continues to worsen in 2024. According to the Triple-I Issues Brief, personal auto insurance has had a net combined ratio over 100 for the past three years, with a 2023 net written premium (NWP) growth of 14.3 percent, which was the highest in over 15 years.

From 2014 through 2023 economic and social inflation added $118.9 billion to $137.2 billion in auto liability losses and defense and cost containment (DCC) expenses. This represents 9.9 percent to 11.5 percent of the $1.2 trillion in net losses and DCC for the period and an increase of 24 percent to 31 percent from the previous analysis on years 2013 through 2022.

A new study – “Increasing Inflation on Auto Liability Insurance – Impact as of Year-end 2023” – is the fourth installment of research on the impact of economic and social inflation on insurer costs and claim payouts. Compared to the prior study, Commercial Auto Liability loss and DCC is 20.7 percent to 27.0 percent ($43 billion to $56 billion) higher due to increasing inflation. Personal auto liability loss and DCC is 7.7 percent to 8.2 percent ($76 billion to $81 billion) higher from increasing inflation.

Key Takeaways

  • The compound annual impact of increasing inflation ranges from 2.2 percent to 2.9 percent for commercial auto liability, which is higher than the personal auto liability estimate of 0.7 percent. However, the impact of increasing inflation from a dollar perspective is much higher for personal auto liability compared to commercial auto liability. This is due, in part, to the underlying size of the line of business.
  • Frequency of auto liability claims per $100 million GDP for 2023 is unchanged for commercial auto liability and lower for personal auto liability compared to 2020, when frequency dropped at the onset of the COVID-19 pandemic for both lines.
  • Severity of auto liability claims continues to increase year over year and has increased more than 70 percent from 2014 to 2023 for both lines.

Researchers Jim Lynch, FCAS, MAAA, Dave Moore, FCAS, MAAA, LLC, Dale Porfilio, FCAS, MAAA, Triple-I’s chief insurance officer, and William Nibbelin, Triple-I’s senior research actuary used a similar methodology as prior studies. Loss development patterns were used to identify inflation for selected property/casualty lines in excess of inflation in the overall economy. The new study extends the model with annual statement data through year-end 2023.

Commercial Auto Liability

The prior study indicated claim severity (size of losses) had risen 72 percent overall from 2013 to 2022, with the median annual increase at 6.3 percent. The new study indicates an additional annual increase of 6.6 percent from 2022 to 2023. The report compares the compound annual growth rate of 6.6 percent from 2014 through 2023 to the compound annual increase in the consumer price index (CPI) of 2.8 percent during this same time. With a flat frequency trend combined with an increasing severity trend in recent years for commercial auto liability, this comparison calls out the higher inflation faced by insurers beyond just general inflation trends.

Personal Auto Liability

While replacement costs remain flat to negative providing relief to personal auto physical damage, personal auto liability represents approximately 60 percent of the overall personal auto line. Similar to commercial auto liability – but slightly lower – claim severity for personal auto liability has increased at a compound annual rate of 6.3 percent from 2014 through 2023. However, unlike commercial auto liability, the frequency for personal auto liability has declined slightly in 2022 and 2023, with 85 claims per $100 million GDP in 2023 compared to 90 in 2022 and 100 in 2021.

Limitation of industry data

The report relies on industry data as reported by insurers to the National Association of Insurance Carriers (NAIC) and made available through different reporting suppliers, such as S&P Global Market Intelligence. As such, different individual inflationary elements – whether economic, social, or otherwise – cannot be determined using the underlying actuarial methodologies.

However, like prior studies the bulk of increasing inflation before 2020 is attributed to social inflation, while social inflation and economic inflation dominate increasing inflation together beginning in 2020.

Triple-I continues to foster a research-based conversation around social inflation as part of legal system abuse. For an overview of the topic and other helpful resources about its potential impact on insurers, policyholders, and the economy, check out our knowledge hub.

Auto Insurance, Business Insurance, Business Risk, Highway Safety, Insurers and the Economy, Market Conditions

Improved Commercial Auto Underwriting Profitability Expected After Years of Struggle

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The commercial auto insurance line has struggled to achieve underwriting profitability for years, even before the inflationary conditions that have been affecting property/casualty lines more recently. This trend has been accompanied by steady growth in net written premiums (NWP).

This weakness in underwriting profitability has been driven by several causes, according to a new Triple-I Issues Brief. One is the fact that vehicles – both commercial vehicles and personal vehicles they collide with – have become increasingly expensive to repair, thanks to new materials and increased reliance on sensors and computer systems designed to make driving more comfortable and safer. This well-established trend has been exacerbated by supply-chain disruptions during COVID-19 and continuing inflation in the pandemic’s aftermath.

Distracted driving and litigation trends also have played a role.

However, Triple-I sees some light on the horizon for commercial auto in terms of the line’s net combined ratio – a standard measure of underwriting profitability calculated by dividing the sum of claim-related losses and expenses by earned premium. A ratio under 100 indicates a profit and one above 100 indicates a loss.

As the chart below shows, the estimated 2024 net combined ratio for commercial auto insurance has improved slightly since 2023, and further improvement is expected over the next two years.

These projected improvements are based on an expectation of continued premium growth – due more to aggressive premium rate increase than to increased exposure – as the rate of insured losses levels off.

Catastrophes, Disaster Preparedness, Disaster Resilience, Flood Insurance

Hurricane Helene Highlights Inland
Flood Protection Gap

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By Lewis Nibbelin, Contributing Writer, Triple-I

Spanning over 500 miles of the southeastern United States, Hurricane Helene’s path of destruction has drawn public attention to inland flood risk and the need for improved resilience planning and insurance purchase (“take up”) to confront the protection gap.

Extreme rainfall and wind inflicted a combination of catastrophic flooding, landslides, and extreme rainfall and wind gusts dumped an unparalleled 40 trillion gallons of water across Florida, Georgia, North Carolina, South Carolina, Virginia, and Tennessee, causing hundreds of deaths and billions in insured losses.

Most losses are concentrated in western North Carolina, with much of Buncombe County – home to Asheville and its historic arts district – left virtually unrecognizable. Torrential rain and mountain runoff submerged Asheville under nearly 25 feet of water as rivers swelled, while neighboring communities were similarly flattened or swept away.

Rebuilding will take years, especially as widespread lack of flood insurance forces most victims to seek federal grants and loans for assistance, slowing recovery. Compounding these challenges, misinformation about assistance from the Federal Emergency Management Agency (FEMA) has impeded aid operations in certain areas, leading FEMA to issue a fact sheet clarifying the reality on the ground.

A persistent protection gap

Less than 1 percent of residents in Buncombe County had federal flood insurance as Helene struck, as illustrated in the map below, which is based on National Flood Insurance Program (NFIP) take-up rate data. Inland flooding isn’t new, and neither is the inland flood-protection gap.

In August 2021, the National Weather Service issued its first-ever flash-flood warning for New York City as remnants of Hurricane Ida brought rains that flooded subway lines and streets in New York and New Jersey. More than 40 people were killed in those states and Pennsylvania as basement apartments suddenly filled with water.

Then, in July 2023, a series of intense thunderstorms resulted in heavy rainfall, deadly flash floods, and severe river flooding in eastern Kentucky and central Appalachia, with hourly rainfall rates exceeding four inches over the course of several days. Subsequent flooding led to 39 fatalities and federal disaster-area declarations for 13 eastern Kentucky counties. According to FEMA, only a few dozen federal flood insurance policies were in effect in the affected areas before the recent storm. 

“We’ve seen some pretty significant changes in the impact of flooding from hurricanes, very far inland,”  Keith Wolfe, Swiss Re’s president for U.S. property and casualty, told Triple-I CEO Sean Kevelighan in a Triple-I Executive Exchange. “Hurricanes have just behaved very differently in the past five years, once they come on shore, from what we’ve seen in the past 20.”

Need for education and awareness

Low inland take-up rates largely reflect consumer misunderstandings about flood insurance. Though approximately 90 percent of all U.S. natural disasters involve flooding, many homeowners are unaware that a standard homeowners policy doesn’t  cover flood damage. Similarly, many believe flood coverage is unnecessary unless their mortgage lenders require it.  It also is not uncommon for homeowners to drop flood insurance coverage once their mortgage is paid off to save money.

More than half of all homeowners with flood insurance are covered by NFIP, which is part of the FEMA and was created in 1968 – a time when few private insurers were willing to write flood coverage.

In recent years, insurers have grown more comfortable taking on flood risk, thanks in large part to improved data and analytics capabilities. This increased interest in flood among private insurers offers hope for improved affordability of coverage at a time when NFIP’s  Risk Rating 2.0 reforms have driven up flood insurance premium rates for higher-risk property owners.  

New tools and techniques

New tools – such as parametric insurance and community-based catastrophe insurance – also offer ways of improving flood resilience. Unlike traditional indemnity insurance, parametric structures cover risks without the complications of sending adjusters to assess damage after an event. Instead of paying for damage that has occurred, it pays out if certain agreed-upon conditions are met – for example, a specific wind speed or earthquake magnitude in a particular area. If coverage is triggered, a payment is made, regardless of damage.

Speed of payment and reduced administration costs can ease the burden on both insurers and policyholders. Alone, or as part of a package including indemnity coverage, parametric insurance can provide liquidity that businesses and communities need for post-catastrophe resilience.

While localized insurance approaches can support flood resilience, coordinated investments in public education and preemptive mitigation are crucial to reducing risk and making insurance more available and affordable. Intergovernmental collaboration with insurers on development zoning and building codes, for instance, can promote the creation of safer and climate-adaptive infrastructure, lowering human and economic losses.

Learn More:

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

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

Attacking the Risk Crisis: Roadmap to Investment in Flood Resilience

Insurance Industry

Triple-I launches campaign to highlight challenges to insurance affordability in Georgia

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By Dale Porfilio, Chief Insurance Officer, Insurance Information Institute

As part of its ongoing work to raise awareness of the impacts of legal system abuse, the Insurance Information Institute (Triple-I) launched a multi-faceted campaign focusing on Georgia. The campaign includes an Interstate 20 billboard in Downtown Atlanta and digital billboards on bus stops and other urban panels across the Metro Atlanta area.

Georgia tops the most recent list of places that the American Tort Reform Foundation (ATRF) calls “judicial hellholes,” states and counties where the organization believes judges in civil cases systematically apply laws and court procedures generally to the disadvantage of defendants. According to ATRF, Georgia earned this ranking due to continued “high nuclear verdicts and liability-expanding decisions by the Georgia Supreme Court.” The state made the list for the first time in the report for 2019-2020, debuting at number 6. 

Triple-I and key insurance industry stakeholders define legal system abuse as policyholder or plaintiff attorney practices that increase costs and time to settle insurance claims, including situations when a disputed claim could have been resolved without judicial intervention. Insurers’ legal costs for claims can mount with the increasing number of lawsuit filings, extended litigation, and outsized jury awards (awards exceeding $10 million). Data from the Insurance Research Council (IRC) indicates that attorney involvement can increase claims costs and the time needed to resolve them, even while reducing value for claimants.

Auto insurance litigation, for example, is a growing concern in Georgia as data reveals coverage affordability for Georgians in this product area has been significantly waning faster than in any other state. An August 2024 report, Personal Auto Insurance Affordability in Georgia, issued by IRC, ranked Georgia 47th in terms of auto insurance affordability. Personal auto insurance expenditures accounted for 2.0 percent of Georgians’ median household income, compared with a 1.5 percent share nationwide. Auto insurance spending in Georgia grew at 5.6 percent annualized between 2014 and 2022, compared with 3.3 percent in the country overall.

Meanwhile, legal service providers spent over $160 million on advertising in Georgia in 2023, according to preliminary data from the American Tort Reform Association (ATRA). 

Earlier this year, a Triple-I issue brief, Legal System Abuse: State of the Risk, highlighted aspects of legal system abuse, including how law firm advertising spend for mass tort cases might play a role in increased filings nationwide. Trial attorneys and third-party litigation funders seeking more profits may use advertising to amp up recruitment for lawsuits with big payouts at the expense of policyholders. A 2023 Triple-I study, Impact of Increasing Inflation on Personal and Commercial Auto Liability Insurance, estimates that increasing inflation drove loss and DCC (defense containment costs) higher in both insurance lines – by 6.5 percent ($61 billion) of total loss and DCC for personal auto and by 19 to 24 percent ($35 to $44 billion) for commercial auto.

Triple-I’s multi-faceted awareness campaign to help educate Georgians about the mounting costs of legal system abuse in the state also includes content such as a video statement by CEO Sean Kevelighan and interviews capturing the opinions of consumers about legal system abuse.

Coverage affordability is a growing concern for many policyholders nationwide. While several factors may impact insurance premiums, unnecessary and excessive litigation can drive higher loss ratios while posing formidable challenges to prediction and mitigation. Triple-I is committed to advancing conversations with business leaders, government regulators, consumers, and other stakeholders to attack the risk crisis and chart a path forward.

We invite you to join the discussion by registering for JIF 2024. Follow our blog to learn more about trends in insurance affordability and availability across the property and casualty market.

Homeowners Insurance, Insurers and the Economy

Buying Your First Home? Know Your Insurance

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By Lewis Nibbelin, Contributing Writer, Triple-I

First-time buyers comprised only 32 percent of the housing market in 2023, according to an annual profile by the National Association of Realtors. Though higher compared to 2022, this number is a stark drop from the 38 percent annual average since 1981.

The ongoing risk crisis and housing shortage, paired with rising mortgage rates, compound the issues prospective property owners typically face when purchasing real estate. These factors are distinctly challenging for first-time homeowners, who are often less informed on the insurance coverage necessary for their property.

Sandra Rampersaud, President and CEO of Vespiary Realty and Aequitas Risk Solutions, helps bridge this informational gap. In a recent episode of the All Eyes on Economics podcast with Triple-I Chief Economist and Data Scientist Dr. Michel Léonard, CBE, Rampersaud discussed the services she provides her clients as both a realtor and insurance broker.

Though many first-time buyers, as she explained, “do not have any clue on what it takes to manage…and even upkeep a home,” Rampersaud prepares clients for homeownership by urging them to consider flood risk and other potential losses from the beginning of the process. Due to the increasing need for flood coverage, which is not offered via standard homeowners insurance policies, flood insurance is a common question during her consultations.

“If this home does need flood insurance,” she asked as an example, “can you [the client] financially afford that? Because this is going to be a long-term commitment for 30 years until you own the home.”

The condition of a property may further complicate the buying process. Recent record-breaking climate disasters have created an influx of extensively damaged houses on the current market, Rampersaud said. Thus, more prospective homeowners must acquire builder’s risk insurance to secure a mortgage for and fix their property. Builder’s risk insurance policies vary wildly depending on the type and extent of renovations, so an understanding of the amount of coverage needed is crucial.

“It’s not always easy,” Rampersaud continued, “because the markets right now on the insurance end have actually ceased or minimized certain geographical areas” due to hurricane and storm damage. Some clients can no longer afford a property after accounting for these insurance costs, so finding realtors and insurance brokers experienced in builder’s risk insurance is especially important given present market trends.

U.S. immigrants are often at a disadvantage when trying to navigate these hurdles to first-time homeownership. Rampersaud—herself an Asian-American immigrant—said many of her immigrant clients lack knowledge when it comes to purchasing real estate.

“A parent growing up may or may not have given us the tools we needed,” she explained, and “having that background myself, I’ve always tutored…my clients in saying, ‘Wait a minute, why don’t we think about utilizing these resources and the way you look at your money to get what you need, which is a home?’”

Credit is a common setback, as immigrants may struggle to develop a credit and savings history in the U.S. to obtain financial backing for a home.

Rampersaud also emphasized the significance of choosing a compatible realtor, particularly one who can empower clients with the specific resources they need to smoothen the homebuying process. She encouraged prospective buyers to meet with and interview multiple realtors to determine the best option for them, saying, “A rule of thumb I have is that if I do meet a prospective buyer, we will have a conversation and a consultation, because I really would like to know if we are a good match for each other.”

Overall, on homebuying, Rampersaud said, “It’s a mindset sometimes people need to be guided to.” Entrusting the aid of knowledgeable, insurance-educated guides is one of the greatest long-term mitigative actions buyers can take toward gaining control over today’s acute economic uncertainty.

Listen to Podcast: Spotify, Audible, Apple

Learn More:

Triple-I “Trends and Insights” Issues Brief: Homeowners Insurance Rates

IRC: Homeowners Insurance Affordability Worsens Nationally, Varies Widely by State

Homeowners Claims Costs Rose Faster Than Inflation for 2 Decades

Triple-I Homebuyers Insurance Handbook

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.

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