Category Archives: Homeowners Insurance

Disaster Preparedness, Disaster Resilience, Homeowners Insurance, Insurers and the Economy

Outdated Building Codes Exacerbate Climate Risk

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By Lewis Nibbelin, Contributing Writer, Triple-I

Natural catastrophe perils’ rising frequency and severity may be impossible to fully abate, but Nationwide Property & Casualty Insurance Co. President and CEO Mark Berven believes modern building codes could dramatically reduce their costly destructiveness.

In a recent article for PropertyCasualty360, Berven wrote that inconsistent building codes create alarming safety disparities from state to state and that improved codes are essential to reducing risk and post-disaster recovery costs.

“Extreme weather events like heat waves, large storms, landslides and more are becoming more frequent and intense,” Berven writes. “The U.S. has already experienced at least 24 confirmed weather disaster events through October with losses exceeding $1 billion each.”

 “Building Codes Save” — a landmark report by the Federal Emergency Management Agency (FEMA) –found that universal enforcement of modern building codes could prevent more than $600 billion in disaster losses by 2060. In states where stricter codes have been implemented, the report says, billion-dollar savings already have been realized.

Virginia and Florida, for example, have long-modeled robust building code systems, leading both to consistently top code adoption rankings – especially after the latter saved an estimated $1 billion to $3 billion in averted damages during Hurricane Ian through its modern Florida Building Code.

By contrast, fewer than one-third of hazard-prone jurisdictions have adopted modernized building codes, and some states – such as Delaware and Alabama – lack mandatory statewide building code systems entirely.

Perceived cost an obstacle

Barriers to adoption include the perceived expenses of enforcement. Conforming existing structures to the same standards as new buildings can be costly, as can rebuilding communities in non-hazardous areas. Navigating these concerns in tandem with an ongoing affordable housing shortage will require a coordinated effort on local, state, and federal levels.

But as the annual average of billion-dollar disasters in the U.S. trends upward, improving building codes must take precedence for policymakers at every level of government, Berven explained, adding that the research organization Insurance Institute for Business & Home Safety (IBHS) has already provided a versatile and relatively affordable outline for safer construction standards.

Known collectively as the FORTIFIED method, such standards reinforce the durability of homes against severe weather, involving, for example, anchoring roofs to wall framing using stronger nails. The FORTIFIED method is, at present, completely voluntary, though the insurance industry-funded Strengthen Alabama Homes incentivizes homeowners to retrofit their houses along these guidelines via thousand-dollar grants. Completed retrofits reduce post-disaster claims and qualify grantees for substantial insurance premium discounts, prompting flood-prone Louisiana to replicate the program.

Given the programs’ demonstrated success, “updating our building codes to align with proven frameworks like IBHS’s FORTIFIED standards is not just an option — it’s a necessity,” Berven wrote. “The time for action is now, and the cost of inaction is far too high.”

Many consumers are unaware of the current absence and potential benefits of building code regulations, he continued, emphasizing an industry need for greater public outreach. Building codes play an indispensable role in enhancing resilience against evolving climate and weather risks, but any “revolution” in their regulation cannot advance without the collaboration of all relevant stakeholders.

Learn More:

IBHS Ranks Building Codes as Above-Average Hurricane Season Approaches

Modern Building Codes Would Prevent Billions In Catastrophe Losses

California Earthquakes: How Modern Building Codes Are Making Safer, More Resilient Communities

Catastrophes, Disaster Preparedness, Disaster Resilience, Floods, Homeowners Insurance, Market Conditions, Risk Management, Wildfire

JIF 2024: Collective,
Data-Driven Approaches Needed to Address Climate-Related Perils

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The need for collective action to address the property/casualty risk crisis was a recurring theme throughout Triple-I’s Joint Industry Forum in Miami – particularly during the panel on climate risk and  resilience. The discussion focused heavily on what’s currently being done to address this evolving area of peril.

The panel, moderated by Veronika Torarp – a partner in PwC Strategy’s insurance practice – consisted of subject-matter experts representing a cross section of natural perils, from hurricanes and floods to wildfires and severe convective storms. They were:

  • Dr. Philip Klotzbach, research scientist in the Department of Atmospheric Science at Colorado State University;
  • Matthew McHatten, president and CEO at MMG Insurance and chairman of Triple-I’s Executive Leadership Committee;
  • Emily Swift, sustainable business framework senior manager at American Family Insurance; and
  • Heather Kanzlemar, consulting actuary at Milliman.

Part of the reason for this need to build coalitions is the diverse and overlapping causes of climate-related events and the related losses. Torarp cited a PwC study that projects the global protection gap in 2025 at $1.9 trillion, though she acknowledged that number may turn out to be “an understatement”.

Warmer, wetter, riskier

Running through the discussions of the various perils was the dynamic nature of evolving threats and the protection gap. Examples included increased inland flooding, such as the devastation caused in the rural southeast by Hurricane Helene, and damage inflicted by surprisingly intense tornadoes spun off by Hurricane Milton.

Dr. Klotzbach discussed the “very busy” 2024 Atlantic Hurricane season with its surprising impact on Asheville, N.C., and surrounding communities from Helene.

“It’s important to understand that the inland flooding threat is extremely problematic,” he said.

MMG’s McHatten emphasized the complexity of addressing flood risk, given the environmental forces driving it.

“Warmer planet, warmer ocean, more precipitation, more wind,” he said, “as well as this dynamic of atmospheric rivers and what happens to them as they start to hit higher elevations.” He pointed out how such conditions – which led to cataclysmic rains in Ashville as well as in MMG’s home state of Maine and the mountains of Vermont – are exacerbated by population trends.

“People live near water because that’s where economy and commerce was,” he said. “The ability to adapt to dynamic conditions that are changing rapidly is super-difficult. We can’t just say, ‘Raise every house six feet’ that’s near a body of water.”

Hope amid the perils

American Family’s Emily Swift discussed the state of severe convective storm risk, which she said is tending to migrate from its historic domain of the U.S. Midwest toward the Southeast.

“As we’re seeing the impact of hurricanes move further west and severe convective storms move further east, that means a lot more risk exposure to our customers who are living in those regions,” she said. “However, I think there’s a lot of hope.”

Swift talked about emerging partnerships between the insurance industry and academia — particularly work being done through Industry-University Cooperative Research Centers (IUCRC) funded by the National Science Foundation (NSF) to better understand severe convective storms and develop innovative ways of addressing the risks they pose.

“I’m optimistic that, although we don’t know quite the direction where severe convective storms are heading, we at least have diversified our risks to better manage them” – thanks, in part, to the learnings derived from these partnerships, Swift said.

Kanzlemar reinforced Swift’s optimistic tone in discussing Milliman’s work around wildfire risk. In the midst of a growing insurance availability and affordability crisis in fire-prone states – particularly California – Milliman is partnering with the Insurance Institute for Building and Home Safety (IBHS) and and stakeholders in its Wildfire Prepared Home program to gather data to help inform insurance underwriting, as well as mitigation and prevention at the community level.

“Most insurers have data on type of structure, what the roof material is, the number of stories,” Kanzlemar said, “but a lot of the granular data around eave enclosures, ember-resistant vents, that data is typically not available, and almost no insurers had that data at a community level to account for adjacent risk.”

That’s the bad news, she said, but “the good news is in the kinds of solutions we’re working toward. Most insurers were willing to consider a contributory data model like a comprehensive loss-underwriting exchange for [wildland-urban interface (WUI)] data as long as there’s sufficient participation and reciprocity. That’s an effort that we’re calling the ‘WUI Data Commons’. ”

All the panelists agreed that such collaborative, data-driven approaches that respect consumer needs and interests at the community level were going to be key to solving natural catastrophe risk in our rapidly changing future.

Learn More:

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

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

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

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

Resilience Investments Paid Off in Florida During Hurricane Milton

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

Accurately Writing Flood Coverage Hinges on Diverse Data Sources

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

JIF 2024: What’s In a Name? When It Comes to Legal System Abuse, A Lot

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By Lewis Nibbelin, Contributing Writer, Triple-I

From “social inflation” to “tort reform” to, simply, “fraud,” settling upon uniform terminology to describe  litigation trends that drive up costs – including insurance premiums – for all Americans is a primary challenge to addressing them, according to participants at Triple-I’s 2024 Joint Industry Forum.

“As we’re trying to raise awareness of this problem with consumers, ‘social inflation’ doesn’t work,” said discussion moderator and Triple-I’s Chief Insurance Officer Dale Porfilio. Though Triple-I previously favored “social inflation,” consumer testing was done that suggested a better name was needed. “That’s when we landed on ‘legal system abuse.’”

“The name absolutely matters,” said Viji Rangaswami, senior vice president and chief public affairs officer for Liberty Mutual. “When you talk to a legislator, whether that’s in Kansas or in Washington, D.C., and you say the words, ‘social inflation,’ they don’t know what you’re talking about. But when you say the words ‘legal system abuse,’ you see the lightbulb go off.”

Louisiana Insurance Commissioner Tim Temple – a self-described “unicorn” among insurance regulators, given his decades-long background in the industry as an agent, broker, and company president – even renamed programs to address “legal system abuse” when he assumed office in January. This shift exemplifies Temple’s commitment to using his experience to shape a regulatory and statutory environment that enhances the attractiveness of Louisiana’s insurance market.

“We’re getting more buy-in now, people understand it,” Temple said. “That’s part of transparency – talking about what it truly is.”

Clear communication is key

Opaque, ill-defined language empowers predatory “billboard attorneys” to define these terms themselves, contributing to pervasive policyholder distrust, said Jeff Sauls, Farmers Insurance head of legislative affairs.

“There’s this perception of the insurance industry amongst the public – and plaintiffs’ attorneys help portray this – as a high-margin business,” he said, when, in reality, “we compete with grocery stores for who can make less money in an average year.”

Attorney advertising – estimated to total over $2.4 billion across the U.S. last year – has commandeered the messaging once associated with insurers, noted Temple, who encouraged the industry to “take back that high ground” of providing “dependability and stability during the worst days of people’s lives” without overuse of brand mascots or jingles.

“We have to remind the public why we exist,” Rangaswami added. “We want to pay claims as expeditiously as possible…. We’re on the side of the consumer, whereas the plaintiffs’ attorney is often on their own side or the investor’s side.”

Third-party litigation funding

With her reference to “investors,” Rangaswami took aim at a little-known, rapidly growing practice called third-party litigation funding (TPLF), in which investors with no stake beyond potential profit step in to fund lawsuits against corporate entities perceived as having deep pockets. As of last year, such investors retained an estimated $15.2 billion in assets for U.S. litigation alone.

Only a handful of states require mandatory disclosure of TPLF, which enables hedge funds and other foreign funders to compound and profit from protracted and even fraudulent U.S. court cases. Secrecy surrounding TPLF prevents insurers and regulators from identifying, let alone mitigating, the risks of increased costs and time to resolve claims disputes.

Preventing adversaries to the U.S. from exploiting TPLF to influence settlement outcomes and access sensitive defense information is another concern.

“We’re looking at TPLF as potentially exacerbating national security risk,” said Jerry Theodorou, policy director for finance, insurance, and trade at the R Street Institute. “Most people don’t know what TPLF is and the way it can insidiously impact the economy, our businesses, our jobs.”

Everyone is affected

Legal system abuse costs the highly litigious states Louisiana and Georgia over 175,000 jobs combined and thousand-dollar “tort taxes” for each resident per year, earning both states recurring spots on the American Tort Reform Foundation’s list of “Judicial Hellholes.” They also rank among the least affordable places for auto and homeowners’ insurance by the Insurance Research Council – an affiliate of The Institutes, like Triple-I.

Louisiana recently enacted a law enforcing some oversight over TPLF, Temple noted, as well as repealed a unique “three-year rule” that impeded actuarially-sound underwriting. But as the state’s bodily injury claims climb well over the national average, more reform is needed to return insurance profitability to the state.

“One thing I would look to is importing some of the good things Florida has done,” Theodorou suggested, explaining that reform curtailing contingency and one-way attorneys’ fees “have brought down the number of lawsuits against insurance companies by 24 percent” for the second consecutive three-quarter period. “Notice of intention to sue is also down by double digits. It’s working, so let’s learn from that.”

Considering the fact that the former “poster child” for legal system abuse generated over 70 percent of all homeowners insurance litigation nationally in 2022 – despite accounting for only about 15 percent of total homeowners claims – Florida’s reduced premium growth and nine new property insurers this year reveal the likely efficacy of such reforms in other states.

Education and coalition building

But such reform requires advocacy, which requires consumer education and coalition building across diverse stakeholder groups, Rangaswami pointed out.

Fixing “an economy-wide problem,” she explained, requires an “economy-wide coalition.”

The end goal is not a “tilted playing field,” Sauls emphasized. “We’re trying to get to a place where we are all on level footing, without being exploited by plaintiffs’ attorneys.”

Legal system abuse “is going to be a pressure point for the industry moving forward,” stressed Fred Karlinsky, shareholder and global chair of Greenberg Traurig, LLP. “No state is immune from what we’ve seen in Florida.”

Karlinsky emphasized that spreading normalization of “nuclear” (over $10 million) and an emergent class of “thermonuclear” (over $100 million) verdicts will stall reform in newly targeted states.

Rangaswami pointed out that not all the news has been bad.

“We had some great wins in 2024,” she said, citing Florida’s improved insurance market and legislation introduced at both the federal and state levels as movement in a promising direction. “But we have to keep this momentum up.”

Learn More:

Triple-I Issues Brief: Legal System Abuse

Agents Play Critical Role in Navigating Impacts of Legal System Abuse on Customers

Legal System Abuse/Social Inflation Adds Costs and Challenges for US Casualty Insurance: AM Best

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

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

How Georgia Might Learn From Florida Reforms

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

Inflation Continues to Drive Up Consumers’ Insurance CostsTriple-I Launches Campaign to Highlight Challenges to Insurance Affordability in Georgia

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

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.

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

Personal Lines Underwriting Results Improve, Reducing Gap With Commercial Lines

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Auto Insurance, ESG, Homeowners Insurance, Regulation, Technology

Actuarial Studies Advance Discussion
on Bias, Modeling, and A.I.

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The Casualty Actuarial Society (CAS) has added to its growing body of research to help actuaries detect and address potential bias in property/casualty insurance pricing with four new reports. The latest reports explore different aspects of unintentional bias and offer forward-looking solutions.

The first  – “A Practical Guide to Navigating Fairness in Insurance Pricing” – addresses regulatory concerns about how the industry’s increased use of models, machine learning, and artificial intelligence (AI) may contribute to or amplify unfair discrimination. It provides actuaries with information and tools to proactively consider fairness in their modeling process and navigate this new regulatory landscape.

The second new paper — “Regulatory Perspectives on Algorithmic Bias and Unfair Discrimination” – presents the findings of a survey of state insurance commissioners that was designed to better understand their concerns about discrimination. The survey found that, of the 10 insurance departments that responded, most are concerned about the issue but few are actively investigating it. Most said they believe the burden should be on the insurers to detect and test their models for potential algorithmic bias.

The third paper – “Balancing Risk Assessment and Social Fairness: An Auto Telematics Case Study” – explores the possibility of using telematics and usage-based insurance technologies to reduce dependence on sensitive information when pricing insurance. Actuaries commonly rely on demographic factors, such as age and gender, when deciding insurance premiums. However, some people regard that approach as an unfair use of personal information. The CAS analysis found that telematics variables –such as miles driven, hard braking, hard acceleration, and days of the week driven – significantly reduce the need to include age, sex, and marital status in the claim frequency and severity models.

Finally, the fourth paper – “Comparison of Regulatory Framework for Non-Discriminatory AI Usage in Insurance” – provides an overview of the evolving regulatory landscape for the use of AI in the insurance industry across the United States, the European Union, China, and Canada. The paper compares regulatory approaches in those jurisdictions, emphasizing the importance of transparency, traceability, governance, risk management, testing, documentation, and accountability to ensure non-discriminatory AI use. It underscores the necessity for actuaries to stay informed about these regulatory trends to comply with regulations and manage risks effectively in their professional practice.

There is no place for unfair discrimination in today’s insurance marketplace. In addition to being fundamentally unfair, to discriminate on the basis of race, religion, ethnicity, sexual orientation – or any factor that doesn’t directly affect the risk being insured – would simply be bad business in today’s diverse society.  Algorithms and AI hold great promise for ensuring equitable risk-based pricing, and insurers and actuaries are uniquely positioned to lead the public conversation to help ensure these tools don’t introduce or amplify biases.

Learn More:

Insurers Need to Lead on Ethical Use of AI

Bringing Clarity to Concerns About Race in Insurance Pricing

Actuaries Tackle Race in Insurance Pricing

Calif. Risk/Regulatory Environment Highlights Role of Risk-Based Pricing

Illinois Bill Highlights Need for Education on Risk-Based Pricing of Insurance Coverage

New Illinois Bills Would Harm — Not Help — Auto Policyholders

Auto Insurance, Homeowners Insurance, Insurers and the Economy, Market Conditions, Workers Compensation

NCIGF Moves Ahead
to Support Insurers

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By Max Dorfman, Research Writer, Triple-I

For the last 35 years, the National Conference of Insurance Guaranty Funds (NCIGF) – an organization dedicated to serving 55 property/casualty state guaranty funds – has provided operational support; communications, education, and outreach; as well as public policy management for these organizations.

State guaranty funds make up a privately funded, nonprofit state-based national system that pays covered claims up to a state’s legally allowable limits, protecting policyholders if their insurer becomes insolvent. There are 55 such funds because some states have more than one.

“All states have a property/casualty guaranty association, and some have a workers compensation guaranty association,” NCIGF President and CEO Roger Schmelzer explained in a recent “Executive Exchange” with Triple-I CEO Sean Kevelighan.

“We’re not claims payers,” Schmelzer said, “We try to do things for our members that they wouldn’t be doing for themselves or that it’s better to be doing in one place.”

For nearly five decades, the guaranty fund system has paid out more than $35 billion to cover claims against about 600 insolvencies.

“Through the years, the system has successfully met every challenge that’s come its way, and has been instrumental in supporting the insurance promise,” Schmelzer said.

NCIGF recently announced its updated organizational strategy, which focuses on:

  • Pre-liquidation planning with regulators and receivers,
  • Understanding and preparing for the changing landscape in insolvencies, and
  • Seeking shared solutions to common problems among state associations.

“We want to understand better the trends and factors that could lead to insolvency,” Schmelzer said. “Then we want to do everything we can with our members, working through our educational arm, to make sure members are prepared for whatever those trends might bring.”

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