Yearly Archives: 2024

Homeowners Insurance, Insurers and the Economy, Legal Environment, Market Conditions

Triple-I Brief Discusses Homeowners Insurance Market Challenges

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By Max Dorfman, Research Writer, Triple-I

Homeowners insurance costs have continued to consistently rise in the wake of the pandemic, alongside several other challenges, according to a new Triple-I Issues Brief.

The COVID-19 pandemic and Russian invasion of Ukraine sparked inflation – particularly with regard to replacement costs due to material shortages. Replacement-cost inflation has been exacerbated by a tight labor market. Even before the pandemic, loss costs had been rising steadily for some time, leading to homeowners insurance premiums climbing consistently from 2001 to 2021, according to the Insurance Research Council (IRC).

These cost factors, combined with rising losses related to natural catastrophes, have contributed to insurance affordability and availability issues, which vary by state. Disaster-related losses have increased over the past 30 years, due mostly to increasing severity of hurricanes and convective storms.

The brief notes that these costs surpassed household income growth, leading to decreased insurance affordability for many U.S. consumers. As expected, disaster-prone states have the least affordable homeowners insurance. The IRC ranks Florida as the state with the least-affordable coverage in the country.

Additionally, legal system abuse, which includes false claims of damage to homes. This has been a common issue in disaster-prone areas, where claims of roof damage, in particular, have substantially increased insurance costs.

The brief states that consumers and policymakers should be cognizant of the dynamics underlying these price shifts and understand why insurers must be forward looking in their approach to pricing these policies.

Learn More

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

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

Homeowners Insurance Costs Exceeded Inflation From 2000 to 2020

Facts + Statistics: Homeowners and Renters Insurance

Industry Financials, Insurers and the Economy, Market Conditions

P/C Underwriting Profitability Remains
at Least a Year Away

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By Max Dorfman, Research Writer, Triple-I

The property/casualty insurance industry is expected to achieve underwriting profitability in 2025, according to the latest research from the Triple-I and Milliman, a collaborating partner. The report, Insurance Economics and Underwriting Projections: A Forward View, which was presented at a members-only webinar on July 11, also projects a small underwriting loss in 2024.

Michel Léonard, Ph.D., CBE, chief economist and data scientist at Triple-I, discussed how P/C replacement costs continue to increase more slowly than overall inflation.

“For the last 12 months, economic drivers of insurance performance have been favorable to the industry, with P/C insurance’s underlying growth catching up to overall U.S. economic growth rates, and its replacement costs increasing at a sluggish pace compared to overall inflation,” Dr. Léonard said. “We expected this favorable window to last into 2025.”

That may not be the case anymore for two reasons, according to Léonard.

“First, U.S. economic growth slowed more than expected in Q1 2024, largely because of the Fed’s lack of clarity about the timing of interest rate cuts,” he said. “Second, global supply chains are again showing stress due to ongoing and increasing geopolitical risk, such as the tensions in and around the Suez Canal. These causes may be threatening to send inflation back toward pandemic-era levels. Geopolitical risk never left, and supply chains are on a lifeline.”

Dale Porfilio, FCAS, MAAA, Triple-I’s chief insurance officer, discussed the split between personal and commercial lines, noting that, “The ongoing performance gap between personal and commercial lines remains, but that gap is closing.”

 “This quarter, we are projecting commercial lines underwriting results to outperform personal lines premium growth by over five points in 2024,” Porfilio added. “The difference, in large part, illustrates how regulatory scrutiny on personal lines has curbed the ability for insurers to increase prices to reflect the significant amount of inflation that impacted replacement costs through and coming out of COVID.”

Jason B. Kurtz, FCAS, MAAA, a principal and consulting actuary at Milliman – a global consulting and actuarial firm – points out how commercial multi-peril is one line that continues to face long-term challenges.

“While the expected net combined ratio of 106.2 is one point better than 2023, matching the eight-year average, the line has not been profitable since 2015. And with a Q1 direct incurred loss ratio of 52 percent and premium growth rates continuing to slow, we see some improvement but continuing unprofitability through 2026,” Kurtz said.

In juxtaposition, Kurtz pointed out the continuing robust performance of workers’ compensation.

“The expected 90.3 net combined ratio is nearly a one-point improvement from prior estimates and would mark 10 consecutive years of profitability for workers’ comp,” he said. “We continue to forecast favorable underwriting results through 2026.”

“Medical costs are going up, but they have not experienced the same type of inflation as the broader economy,” added Donna Glenn, FCAS, MAAA, chief actuary at the National Council on Compensation Insurance (NCCI). NCCI produces the Medical Inflation Insights report, which provides detailed information specific to workers’ compensation on a quarterly basis. “Since 2015, both workers’ compensation severity and medical inflation, as measured by NCCI’s Workers’ Compensation Weighted Medical Price index, have grown at a similar rate, a quite moderate 2 percent per year.”

Other highlights of the report include:

  • Homeowners insurance underwriting losses expected to continue for 2024-2025, but the line is expected to become profitable in 2026, with continued double-digit net written premium growth for 2024-2025.
  • Personal auto net combined ratio improved slightly from prior estimates and is on track to achieve profitability in 2025.
  • Commercial lines 2024 net combined ratio remained unchanged despite shifts in commercial property (-1 point), workers’ compensation (-1 point), and general liability (+1 point).
  • Net written premium growth rate for personal lines is expected to continue to surpass commercial lines by over 8 percentage points in 2024.
Insurers and the Economy, Legal Environment, Market Conditions, Regulation

Economic Climate Makes Understanding Insurance Increasingly Important

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By Lewis Nibbelin, Guest Blogger for Triple-I

Insurance coverage has long been “a grudge purchase – a once-or-twice-a-year transaction that many consumers didn’t want to think about,” Triple-I CEO Sean Kevelighan said in a recent episode of the “All Eyes on Economics” podcast.

But in today’s dynamic economic environment – marked by inflation the likes of which most insurance purchasers have never experienced – it has become more important than ever for consumers and policymakers to understand how insurance is underwritten and priced.

One of Triple-I’s chief objectives is “helping people understand what insurance can do for you, but also what you can do to change the situation,” Kevelighan told podcast host and Triple-I Chief Economist and Data Scientist Michel Léonard. “The narrative seems, at least from my standpoint, to be less about, ‘Why is my insurance so high?’ It’s more about, ‘What can we do to get it lower?’”

Rising insurance premium rates are the effect of risk levels, loss costs, and economic considerations like inflation. Too often, though, they’re discussed as if they were the cause.

High property/casualty premium rates are the result of numerous coalescing factors: Increased litigation, inflation, antiquated state regulations, losses from natural catastrophes, and pervasive post-pandemic high-risk behaviors, to name a few.

Every dollar invested in disaster resilience could save 13 in property damage, remediation, and economic impact costs, according to a recent joint report from Allstate and the U.S. Chamber of Commerce. As areas vulnerable to climate disasters become increasingly populated, it’s important for policyholders to develop resilience measures against the wildfire, hurricane, severe convective storm, and flood risks their property faces.

Consumer education and community involvement in mitigation and resilience offer a path toward greater control over claims.

However, regulatory barriers to fair, accurate underwriting also contribute to higher insurance costs. Despite tort reforms, rampant litigation has kept upward pressure on rates in Florida and Louisiana. California’s outdated Proposition 103 – by barring insurers from using modeling to price risk prospectively and from taking reinsurance costs into account when setting rates – has   impeded insurers from using actuarially sound insurance pricing.

Confusion around industry practices and effective mitigation is understandable, and during periods of economic instability and unforeseen disasters, blaming the insurance industry may seem the most direct way to regain control.

But rising rates are “not just an insurance problem,” Kevelighan said. “It’s a risk problem, and we all play a role in addressing that risk.”

The full interview is available now on Spotify, Audible, and Apple.

Catastrophes, Coastal Property, Disaster Preparedness, Disaster Resilience, Flood Insurance, Floods, Homeowners Insurance, Legal Environment, Regulation, Wildfire

Triple-I Experts Speak
on Climate Risk, Resilience

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Hurricane Beryl’s rapid escalation from a tropical storm to a Category 5 hurricane does not bode well for the 2024 Atlantic Hurricane season, which is already projected to be of above-average intensity, warns Triple-I non-resident scholar Dr. Philip Klotzbach.

“This early-season storm activity is breaking records that were set in 1933 and 2005, two of the busiest Atlantic hurricane seasons on record,” Dr. Klotzbach, a research scientist in the Department of Atmospheric Science at Colorado State University, recently told The New York Times.

The quick escalation was a result of above-average sea surface temperatures. A hurricane that intensifies faster can be more dangerous as it leaves less time for people in its path to prepare and evacuate. Last October, Hurricane Otis moved up by multiple categories in just one day before striking Acapulco, Mexico, as a Cat-5 that killed more than 50 people.

After weakening to a tropical storm, Beryl made landfall as a Cat-1 hurricane near Matagorda, Texas, around 4 a.m. on July 8, according to the National Hurricane Center, making it the first named storm in the 2024 season to make landfall in the United States.  Beryl unleashed flooding rains and winds that transformed roads into rivers and ripped through power lines and tossed trees onto homes, roads, and cars. Restoring power to millions of Texans could take days or even weeks, subjecting residents who will not have air conditioning to further risk as a sweltering heatwave settles over the state.

Extreme heat was just one climate-related topic addressed by Triple-I Chief Insurance Officer Dale Porfilio in an interview with CNBC’s “Last Call” on July 9. While most farmers are insured against crop damage due to heat conditions and homeowners insurance typically covers wildfire-related losses, Porfilio noted, a “more subtle impact is on roofs that we thought were built to a 20-year lifespan.”

When subjected to extreme heat, roofs can become more brittle and prone to damage from wind or hail.

“So, you have to think about the roof coverage on your home insurance policy,” Porfilio said.

He also pointed out that flood risk represents “one of the biggest insurance gaps in this country. Over 90 percent of homeowners do not have the coverage.”

Many people incorrectly believe homeowners insurance covers flood damage or that they don’t need the coverage if their mortgage lender does not require it.

In an interview on CNBC’s “Squawk Box,” Triple-I CEO Sean Kevelighan discussed the potential impact of the predicted “well above-average” 2024 season on the U.S. property/casualty market.

“This is what the insurance industry is prepared for,” Kevelighan said. “It keeps capital on hand after writing policies to make sure that those promises can be kept.” The P/C industry has $1.1. trillion in surplus as of March 31, 2024.

Kevelighan pointed out that the challenges to the industry go beyond climate-related trends, explaining how legal system abuse, regulatory environments, shifting populations, and inflation are impacting insurers’ loss costs.

In Florida, for example, “you’ve got over 70 percent of all homeowners insurance litigation residing in that state, whereas it represents less than 10 percent of the overall claims.”

He pointed out that Florida’s insurance market has improved – with homeowners insurance premium growth  flattening somewhat – as a result of tort reform legislation and added that Louisiana’s legislature addressed insurance reform during its most recent session.

“In California, insurers can’t catch up with inflationary costs because of regulatory constraints,” Kevelighan noted. “They are not able to model [climate risk] and are not able price reinsurance into their policies.”

California’s wildfire situation is complex, and the state’s Proposition 103 has hindered insurers’ ability to profitably write homeowners coverage in that disaster-prone state. In late September 2023, California Insurance Commissioner Ricardo Lara announced a package of executive actions aimed at addressing some of the challenges included in Proposition 103. Lara has given the department a deadline of December 2024 to have the new rules completed.

Learn More:

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

Lightning-Related Claims Up Sharply in 2023

Less Severe Wildfire Season Seen; But No Less Vigilance Is Required

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

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

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

2024 Wildfires Expected to Be Up From Last Year, But Still Below Average

CSU Researchers Project “Extremely Active” 2024 Hurricane Season

Triple-I Issues Brief: Hurricanes

Triple-I Issues Brief: Attacking Florida’s Property/Casualty Risk Crisis

Triple-I Issues Brief: California’s Risk Crisis

Triple-I Issues Brief: Legal System Abuse

Triple-I Issues Brief: Wildfires

Triple-I Issues Brief: Severe Convective Storms

Triple-I Issues Brief: Flood

Industry Financials, Insurance Industry, Insurance News

Reinsurance Buyers See More Balanced Market at July 1 Renewals: Gallagher Re

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Reinsurers experienced near-record returns in 2023, and continued to post strong results in the first quarter of 2024, with up to a 12% improvement in combined loss ratios, according to Gallagher Re’s 1st View report.

The report attributes these positive outcomes to several factors, including relatively benign natural catastrophe activity, adjustments in the reinsurance market, improved conditions in primary markets, and higher reinvestment rates. Improved results have created a more favorable market for reinsurance buyers, with sufficient capital available to meet increased demand, Gallagher Re observed.

“This more comfortable market for buyers has been underpinned by an increasing supply of capital to meet increased demand as reinsurers balance sheets have expanded on the back of strong 2023 and Q1 2024 results,” commented Gallagher Re CEO Tom Wakefield.

Non-life insurance-linked securities (ILS) capital reached a record level of $107 billion at the end of 2023 and continued to grow in the first half of 2024, driven by successful catastrophe bonds and increased investor interest.

However, ILS capacity became less abundant by midyear, as the Atlantic hurricane season approached,  Gallagher Re noted.

“ILS capacity became scarce as ILS investors were ‘unnerved’ by forecasts of an active hurricane season,” the report stated.

Property outlook

The property reinsurance market has experienced increased competitiveness and capacity due to reinsurers’ strong performance in recent years, the report noted.

While reinsurers were not significantly impacted by natural catastrophe losses in Q1, there were an estimated $43 billion of economic losses and $20 billion insured losses in Q1 with both numbers being near the 10-year average.

The first quarter is not traditionally a major driver of the annual natural catastrophe loss burden, historically only representing 14% of the full-year total. Losses in Q1 have been dominated by severe convective storm losses (34% of insured losses) and other secondary perils of wildfire, drought and flood making up another 29%.

At July 1 renewals, risk-adjusted catastrophe pricing for Florida property was down 0% to 10% on average, and additional capacity demands of $3 billion to $5 billion in Florida were all met.

“Following three consecutive years of double-digit risk-adjusted rate increases, reinsurers were looking to hold the line from a procing perspective,” the reinsurance intermediary said of the Florida property catastrophe market.

The report also highlighted that buyers of property catastrophe insurance have been able to negotiate better terms and conditions on their reinsurance contracts due to the “risk on” approach taken by reinsurers. Risk-adjusted catastrophe placements in the U.S. generally were down 0% to 12% at July 1, Gallagher Re reported.

Non-catastrophe property pricing in the U.S. was down 0 to 10% for loss free accounts, but up 5% to 15% with losses.

Casualty outlook

“Casualty underwriters appear less confident than property underwriters outlined above, although this warrants its own caveat. The issues driving stakeholder concerns are regionally nuanced as the frequency and severity of casualty losses are driven by local societal, economic, judicial, legislative, and behavioral factors,” the report stated.

In the casualty insurance sector, concerns over rate adequacy in the U.S. have increased, following adverse development reported by liability insurers in the fourth quarter of 2023 and the first quarter of 2024. The lengthening and deteriorating tail of liability claims have exacerbated reinsurers’ concerns, as the market is already dealing with economic and non-economic loss inflation.

At July 1 renewals, risk adjusted excess of loss rates for U.S. general liability business were up 5% to 10% with no losses, and up 5% to 15% with emerging losses.

For U.S. health care liability, increased loss severity was seen across the health care sector. Excess of loss rates were up 0 to 5% for limited-exposed layers, and up 3% to 8% for catastrophe layers, without emerging losses. Rate increases were greater — up 5% to 20% — for layers with emerging losses.

Professional liability lines with no emerging losses saw excess of loss rates decline 0% to 5%, while accounts with losses experienced 0% to 10% increases.

Workers compensation has seen continued pressure for increases, even on loss-free layers, Gallagher Re noted. Excess of loss rates with no loss emergence were up 0 to 5% and with loss emergence, increased 5% to 10% at July 1.

The full report can be downloaded on the Gallagher Re website.

Insurance News

Investing in Resilience Provides Significant Economic Benefits: Allstate/U.S. Chamber

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Every $1 invested in disaster resilience and preparedness saves $13 in economic impact, property damage and cleanup costs, emphasizing the value of proactive measures in mitigating the financial toll of natural disasters on U.S. communities and businesses, according to a new report from Allstate, the U.S. Chamber of Commerce, and the U.S. Chamber of Commerce Foundation.

The research, based on an analysis of 25 disaster scenarios, shows the return on investment (ROI) in resiliency programs includes economic benefits like saving jobs, preserving workforces, and reducing losses to production and income.

The U.S. has faced a growing toll from costly disasters in recent decades. From 1980 to the present, the nation experienced 383 climate-related events that each caused more than $1 billion in damage (adjusted for inflation to 2023 dollars). Cumulatively, these events have resulted in a total cost exceeding $2.7 trillion. To put this figure into perspective, the U.S. gross domestic product (GDP) was $22.4 trillion in 2023, the report noted.

The scale and location of disasters significantly impact the overall costs incurred. Larger disasters that strike urban centers tend to have far greater financial consequences compared to smaller events or those affecting rural areas, the research shows. However, regardless of the size or setting, the mounting costs of disasters present policymakers and citizens with difficult decisions about how to allocate limited resources, according to the report.

Economic Benefits of Investing in Resilience and Preparedness

A widely accepted ratio of the ROI of resilience, based on National Institute of Building Sciences research, is that $1 invested in resilience and disaster preparedness reduces damage and cleanup costs by $6. But the economic benefits extend far beyond that: The same $1 investment also reduces a community’s economic costs by an additional $7, the research found.

The potential savings are substantial across a range of disaster scenarios.

For example, $10.8 billion of investments to prepare Miami for a Category 4 major hurricane would prevent the loss of about 184,000 jobs and save $26 billion in production and $17 billion in income. In San Diego, $833 million invested to mitigate against a major earthquake would save about 38,000 jobs, $5.8 billion in production, and $3.3 billion in income.

Even in smaller cities, the economic savings are substantial. Investing $83 million in resilience and preparedness for a destructive tornado hitting Nashville would save more than 5,300 jobs, $683 million in production, and $464 million in income. The same $83 million investment to prepare Santa Fe for a major wildfire would save 388 jobs and preserve $45 million in output and $20 million in income.

Resilience and Preparedness Investment Options

“Doing nothing to prepare your community, business, or home for natural hazards is—without understatement—a recipe for disaster,” the report’s authors stated.

The report captured various resilience and preparedness efforts, organized into the following categories:

  • For Communities: Investing in Infrastructure
    Community-based disaster risk reduction focuses on preventive action before a disaster strikes, including measures such as poverty alleviation, asset redistribution plans, and providing basic services like education and health care. Early warning systems are also crucial for alerting community members of impending disasters. Additionally, adopting zoning, land-use practices, and building codes through mitigation planning can help prevent or reduce damage from hazards.
  • For Businesses: Mitigating Risk and Fostering Resilience
    Businesses can invest in hazard mitigation measures, such as structural improvements, adjustments based on professional hazard audits, accessibility updates, and employee training for emergency response. Applying disaster risk reduction practices is also essential. Five essentials practices outlined by the United Nations Office of Disaster Risk Reduction are: promoting public-private partnerships, leveraging private sector expertise, fostering collaborative data exchange, supporting risk assessments, and strengthening laws and regulations. 
  • For Families: Awareness, Planning, and Home Improvements
    Families play a crucial role in building resilience and preparedness. The first step is to understand the types of disasters that could occur in your area and learn how to stay safe. Creating a family disaster plan that includes meeting places in case family members are separated is also essential. Home improvements, such as elevating electrical appliances, using flood-resistant materials, and maintaining or upgrading roofs, can help protect your home and loved ones during a disaster.

To view the complete report, visit the Allstate website.

Auto Insurance, Homeowners Insurance, Insurers and the Economy, Legal Environment, Market Conditions, Risk Management

Insurance Underwriting
and Economic Analysis: “Art and Science”

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By Lewis Nibbelin, Guest Blogger for Triple-I

Home and auto insurance premium rates have been a topic of considerable public discussion as rising replacement costs and other factors – from climate-related losses to fraud and legal system abuse – have driven rates up and, in some states, crimped availability and affordability of coverage.

It’s important for policyholders and policymakers to understand the role of economic conditions and trends in setting rates.  Jennifer Kyung, Property and Casualty Chief Underwriting Officer at USAA, opens a window into the complex world of underwriting and economics in a recent episode of Triple-I’s All Eyes on Economics podcast.

Kyung told podcast host and Triple-I Chief Economist and Data Scientist Dr. Michel Léonard that economic analysis “is critical to us in underwriting and as we manage our plan.” She described economics as “part of our muscle memory as underwriters” – adding that the economic uncertainty of recent years reinforces the need for underwriters to have “a very agile mindset.”

Underwriting and economics are “a little bit art and science,” representing a balancing act between sophisticated data analytics and creative problem-solving.

“When we think about sales and premiums for homeowners, we may look at things like mortgage rates or new home starts to indicate how the market is going,” Kyung said. “In auto, we might look at new vehicle sales or auto loan rates. These, in combination, help us look at macro-economic trends and the environment and how that might interplay with our volume projections. That helps us with financial planning, as well as operational planning.”

“It’s really critical to keep these on the forefront on an ongoing basis throughout the year,” she said, “so we can adjust as needed…. As our results come in, this gives context to the results.”

Through continual analyses of external market conditions and the internal quality and growth of your business, Kyung said, underwriters “can manage and mitigate some of the volatility and risk for our organizations.”

A tool she recommends for evaluating economic indicators is Triple-I’s replacement cost indices, which track the evolution of replacement costs throughout time across various lines of insurance and geographic regions. These indices enable insurers to synthesize raw economic data and insurance market trends, providing an auxiliary framework to bolster financial and operational planning.

Kyung said Triple-I offers additional insight into “local flavor,” or “understanding what the emerging issues are…related to the local environment,” through such tools as Issues Briefs and Insurance Economics Profilers. Recent supply-chain disruptions have accentuated the relationship between local and global economies, revealing the importance of employing local economic analytics to interpretations of broader insurance market patterns.

Such fusions can help facilitate efficient planning in the face of shifts in the insurance landscape.

The full interview is available now on Spotify, Audible, and Apple.

Catastrophes, Homeowners Insurance, Insurance Industry, Legal Environment, Market Conditions

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

Historic Florida State Capitol Building Source: Getty Images

Homeowners insurance premium growth in Florida has slowed since the state implemented legal system abuse reforms in 2022, according to a Triple-I analysis.

As shown in the chart below, average annual premiums climbed sharply after 2020. This was due in part to inflation spurred by the COVID-19 pandemic and the war in Ukraine as well as longtime challenges in the state with claim fraud and legal system abuse.

Source: Triple-I analysis of NAIC and OIR data

According to the state’s Office of Insurance Regulation (OIR), Florida accounted for nearly 71% of the nation’s homeowners claim-related litigation, despite representing only 15% of homeowners claims in 2022, the year Category 4 Hurricane Ian struck the state. In that same year, and prior to Ian making landfall in the state as a first major hurricane since 2018’s Hurricane Michael, six insurers declared insolvency. Hurricane Ian became the second largest on record by insured losses, in large part because of the extraordinary litigation costs estimated to result in Florida in the aftermath.  

The Florida Legislature responded to the growing crisis by passing several pieces of insurance reform, primarily tackling problems with assignment of benefits (AOB), bad-faith claims, and excessive fees.  For example, the new laws eliminated one-way attorney fees in property insurance litigation, forbid using appraisal awards to file a bad-faith lawsuit, and prohibited third parties from taking AOBs for any property claims. The legislation also ensures transparency and efficiency in the claims process and encourages more efficient, less costly alternatives to litigation.  

A surge in litigation

Litigation spiked when backlogged courts reopened following the pandemic, then again when the reforms were passed in 2022 and 2023, as plaintiffs’ attorneys raced to file suits ahead of implementation of the legislation.

This increase in litigation, combined with persistently strong inflation, contributed to increased loss costs and premium increases. In 2022, average homeowners premium rates rose more than 17 percent, to $3,040. Premiums continued to rise in 2023, although at a decreasing rate, as inflation has moderated and legal reforms have kicked in.

There are early signs that the reforms are beginning to bear fruit. In 2023, Florida’s defense and cost-containment expense (DCCE) ratio – a key measure of the impact of litigation – fell to 3.1, from 8.4 in 2022, according to S&P Global. In dollar terms, 2023 saw $739 million in direct incurred legal defense expenses – a major decline from 2022’s $1.6 billion. For perspective, incurred defense costs in the two largest U.S. insurance markets in 2023 were $401.6 million in California, followed by $284.7 million in Texas. As the chart below shows, Florida’s DCCE ratio – even during its best years – regularly exceeds the nation’s.

As insurers have failed or left the state, Citizens Property Insurance Corp. – the state-run insurer of last resort and currently Florida’s largest residential insurance writer – has swelled with new business and lawsuits. Citizens’ depopulation efforts to move policyholders to private insurers contributed to policy counts falling to 1.23 million by the end of 2023.

It’s important to remember that all premium estimates are based on the best information available at the time and actual results may differ due to changes in market conditions. For example, earlier Triple-I projections that average annual homeowners premiums in Florida would exceed $4,300 in 2022 and $6,000 in 2023 assumed significant rate increases would be needed to restore profitability to the state’s homeowners market. These projections did not assume legislative reform or that Citizens would become the state’s largest homeowners insurance company, with many risks priced below the admitted and excess and surplus markets. Our projections also assumed inflation would continue to grow at rates similar to those prevailing at the time.

In light of the reforms and moderating inflation, we are now reporting lower average annual premiums of $3,040 (2022) and $3,340 (2023). The Florida OIR has reported average premium rate filings are running below 2.0 percent in 2024 year-to-date in the private market. Further, OIR indicated eight domestic carriers have filed for rate decreases and 10 have filed for no increase this year. Additionally, eight property insurers have been approved to enter the Florida market, with more expected this year.

Triple-I will continue to monitor and report on the evolving property insurance market in Florida.

Insurance News

Global Insurers Embracing AI for Claims Resolution, Customer Service

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The global insurance industry is grappling with significant challenges in claims resolution, as supply chain disruptions, rising inflation, and geopolitical tensions hinder the ability to process claims efficiently, according to a recent survey by Gallagher Bassett.

To navigate these obstacles, insurers are increasingly embracing digital solutions such as AI chatbots, data analytics, and streamlined digital claims processing to optimize operations and enhance decision-making capabilities, the survey found.

As insurers adapt to the evolving landscape, the adoption of cutting-edge technologies is becoming a critical strategy for insurers seeking to remain competitive and provide superior customer experiences, Gallagher Bassett noted.

“One of the key opportunities for insurers lies in the advancements in data analytics and AI. These technologies can help improve underwriting precision, streamline operations, and provide personalized customer experiences. By embracing digital transformation, insurers can increase efficiency and cost savings, benefiting themselves and their policyholders,” Gordon Vater, managing direct of GB Technical for Gallagher Bassett, wrote in the report.

The global supply chain has faced significant challenges in recent years, including rising inflation, geopolitical tensions, and energy prices. These challenges have had a substantial impact on insurers’ ability to resolve claims promptly and efficiently, the survey found. Over half of all global insurers have reported a moderate (43%) to significant (19%) impact on their ability to manage end-to-end claims resolution processes due to supply chain disruptions.

In response to these challenges, insurers have implemented various strategies to mitigate delays in claims resolutions. A majority (54%) of insurers have focused on implementing digital claims processing, which streamlines the claims process and reduces a reliance on physical documentation. Additionally, 45% of insurers have adjusted their claims processing timelines to account for potential delays, while 36% have expanded their repair vendor networks to ensure timely access to necessary resources.

The adoption of technology solutions has become a priority for insurers worldwide, with 57% investing in digital tools to improve claims resolution times in the face of supply chain challenges. Insurers are also emphasizing cost-saving measures (53%), diversifying supplier bases (44%), and making changes in vendor management (30%) to navigate the current landscape effectively.

Leveraging Technology and AI for Claims Resolution

AI chatbots and generative AI are proving instrumental in optimizing operations across the insurance industry, with 67% of insurers utilizing these technologies for customer service and 45% for claims processing. Risk assessment (31%) and underwriting processes (25%) are also benefiting from AI integration, the survey showed.

The adoption of AI in claims resolution is well underway, with 44% of insurers currently in the process of integrating AI chatbots or generative AI, and 42% having already successfully incorporated these technologies. Only 10% of insurers said they would not adopt AI for claims resolution.

Nearly all insurers, 95%, said speed and operational efficiency are the expected benefits of AI adoption, followed by lower costs/headcount, 74%, better customer service, 68%, and enhanced claims outcomes, 49%, according to the survey.

Challenges and Best Practices for AI Integration

As insurers increasingly adopt AI technologies to streamline operations and improve claims processing, they face several challenges in implementation. According to the survey, 39% of insurers struggle with seamlessly integrating AI into their business operations, while 26% grapple with ensuring compliance. Data privacy and security concerns are also a significant hurdle for 20% of insurers.

However, despite the perceived benefits of AI, only 37% of insurers are incorporating new technologies for disaster assessment and claims resolution following severe weather events. Among those insurers, notable best practices include utilizing satellite imagery, 3D technology, and predictive modeling to analyze historical weather patterns and claims data, facilitating swift and comprehensive damage assessments, according to the report.

While AI-enabled decision-support tools offer valuable insights, combining them with human expertise yields the best claims outcomes. By integrating AI tools at specific points along the claims lifecycle and leveraging human intervention to uncover hidden patterns and contextual factors, insurers can enhance decision-making and achieve better results.

Insurance News

Liability Loss Trends Outpace Insurance Limits, Chubb Benchmarking Survey Finds

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The gap between liability loss trends and median liability insurance limits is growing, continuing the trend of the last 10 years, according to research from Chubb.

The “16th annual Liability Limit Benchmark & Large Loss Profile” report from Chubb provides data to help businesses determine appropriate liability insurance limits in today’s risky environment, fueled in part by the rise of nuclear verdicts and increasing punitive damages.

“This information is critical for building adequate liability towers that can adequately protect clients and their businesses, especially in the face of economic and social inflation, litigation funding, and nuclear verdicts, all of which continue to drive elevated liability-related loss costs,” the report stated. “The number of nuclear jury verdicts – that is, verdicts for awards of more than $10 million – is rising rapidly as cases that had been pending due to the pandemic continued making their way back into court.”

In 2022, nuclear verdicts totaled more than $18.3 billion, a significant jump from $4.9 billion in 2020, the report noted, citing Verisk data.

The Chubb report analyzed 11 industry sectors to help companies benchmark their liability insurance limits against others in their field, and highlight loss trends and significant losses in each sector.

Median liability insurance limits purchased nearly a decade ago declined across nine out of the 11 sectors analyzed, Chubb found. For example, median limits purchased in 2023 were 44% lower than in 2014 for the construction sector; nearly 31% lower for health care companies; and 28% lower for consumer products companies. Only the utilities sector had more coverage last year than 2014 with a 9% increase in the median limits purchased.

Liability Trends Across Industry Sectors

Here’s a closer look at the median liability limits purchased and loss cost trends in 2023 for 11 key sectors.

Life Sciences: In the life sciences sector, median insurance limits reached $241 million in 2023, a slight increase from $237 million in 2022 and $236 million in 2021. However, loss costs for this sector have  consistently outpaced median limits, reaching $600 million in 2023.

Health Care: Health care companies saw median insurance limits of $168 million in 2023, a decrease from $180 million in 2022 and $170 million in 2021. Over the past decade, median limits purchased by healthcare companies have declined by 30%, while loss costs continue to rise, hitting $450 million in 2023.

Consumer Products: The consumer products sector experienced a drop in median limits purchased, with $263 million in 2023, down from $300 million, which remained unchanged from 2016 to 2022. Meanwhile loss costs exceeded $800 million in 2023.

Real Estate/Hospitality: Median insurance limits purchased in the real estate/hospitality sector were $298 million in 2023, a slight decrease from $300 million in 2022 but an increase from $265 million in 2021. Loss costs, however, reached $700 million in 2023.

Transportation/Road: In the transportation/road sector, median limits purchased were $170 million in 2023, down from $175 million in 2022 and $183 million in 2021. Loss costs surpassed $450 million in 2023.

Transportation/Rail: The transportation/rail sector saw median limits of $323 million in 2023, a decrease from $348 million in 2022 and on par with median limits in 2021. Loss costs for this sector, however, reached $1.5 billion in 2023.

Construction: Median insurance limits purchased in the construction sector remained at $250 million, unchanged from 2022 and down from $260 million in 2021. Loss costs were nearly $700 million in 2023.

Manufacturing: The manufacturing sector experienced a decline in median insurance limits, with $340 million in 2023, down from $350 million in 2022 and $355 million in 2021. Loss costs were nearly double, approaching $700 million in 2023.

Oil/Gas: Oil/gas companies saw median limits purchased of $498 million, an increase from $469 million in 2022 and $475 million in 2021. The loss costs for the sector exceeded $1.2 billion in 2023.

Utilities: In the utilities sector, median limits were $375 million, a decrease from $385 million in 2022 but a slight increase from $371 million in 2021. Loss costs exceeded $700 million.

Chemical: The chemical sector saw median insurance limits purchased of $350 million, unchanged from 2022 and down from $400 million in 2021. Loss costs topped $1 billion in 2023.

Rise in Nuclear Verdicts and Punitive Damages

In recent years, there has been a notable increase in liability loss trends as a result of juries awarding punitive damages, Chubb noted. This trend is driven by several factors, including increased social consciousness and desire to punish corporations for perceived negligent behavior. Additionally, ideological divides and desensitization to awards in the billions of dollars have contributed to this trend, the report stated.

As a result of these factors, the risk, prevalence and quantum of punitive damage awards continue to rise, Chubb said, citing a 2022 report on punitive damages liability. The objective measures that dictate the amount of compensatory damages awarded to a plaintiff, such as actual medical costs and lost wages, are non-existent in the assessment of punitive damages, leading to a greater potential for large awards, according to Chubb.

Many organizations and businesses are seeking to mitigate the risk of punitive damages through insurance coverage. However, in several states, including California, Colorado, New York, Rhode Island and Utah, purchasing insurance that protects against punitive damages is restricted, Chubb said, noting that these states also happen to be where the majority of U.S. economic activity occurs and where nearly all punitive damage awards are made.

Despite the restrictions on punitive damage insurance in certain states, there are insurance solutions available for organizations looking to mitigate this risk, the insurer said. One such solution is seeking out punitive damage wrap (puni-wrap) policies, which are separate, standalone policies procured and issued outside of the U.S.

Industry Expert Insights on Factors Contributing to Punitive Damages

Different market segments have their own unique exposures and risk factors that contribute to the risk of nuclear verdicts and punitive damages. Three Chubb experts weighed in on the factors impacting their industries.

In the construction industry, Lyndsey Christofer, Construction and Real Estate & Hospitality Practice Leader at Chubb, noted, “One of the factors driving nuclear verdicts in the construction industry is the sheer size of the projects. They just keep getting bigger….When jurors see the amount that goes into a project, that can color the amount that they believe a plaintiff is entitled to.”

Caroline Clouser, Healthcare Industry Practice Leader at Chubb, highlighted the increasing sophistication of plaintiffs in bringing complex medical cases. “Plaintiffs used to shy away from the complexities of medical malpractice cases, but over the past several years have become very practiced in bringing complex medical cases and explaining the care and treatment in such a way that inflames the jurors, opening a potential for very large awards.”

“In the life sciences industry, it is especially important that jurors receive the full, factual scientific picture when it comes to product liability cases,” said Lee Farrow, Life Sciences Industry Practice Leader at Chubb. “In many instances, it is difficult for judges to decide what should be admissible, and that could lead to the admissibility of junk science. In those cases, jurors could be taking a paid expert’s opinion as fact, leading to excessive jury verdicts.”

To view the full report, visit Chubb website.