Large insurers AIG and Farmers Group are pulling back from climate and catastrophe exposed property risks, joining other insurers that have either reduced or ceased offerings altogether in U.S. regions vulnerable to floods, storms, and wildfires, reports the Wall Street Journal (WSJ).
The publication has reported that AIG is planning to cut its offerings of homeowners’ policies in as many as 200 ZIP codes at high risk to floods or wildfires, including areas like New York, Delaware, Florida, Montana, Colorado, Idaho, and Wyoming. The carrier has already reduced new business in California, which is once again being heavily impacted by wildfires.
At the same time, reports the WSJ, Farmers Group has stopped offering new policies in hurricane-prone Florida, with the insurer noting historically high catastrophe costs and the impacts of inflation on reconstruction expenses.
The pair join other large players which have decided to curb their exposure to cat-exposed regions. As we wrote in late May, State Farm is ceasing to underwrite both commercial and residential property in California, citing exposure related issues and a challenging reinsurance market environment.
State Farm’s announcement came after primary insurer Allstate announced its decision to halt underwriting new homeowners, apartment and commercial property insurance in the state in 2022.
As a result of elevated catastrophe losses in places like Florida and California in recent years, reinsurance rates have increased significantly and the market remains firm, meaning buyers of protection are having to pay more for their reinsurance or retain more exposure.
Another option is to cut exposure to these risks by reducing the amount of business they write in these lines of business, or to exit the market entirely.
For homeowners, this means less choice and potentially higher premiums as the supply demand imbalance shifts further in these regions.
In Florida, legislative changes have been made in an effort to stabilise the property market, but it remains to be seen if the measures taken will have any meaningful impact.
It’s understood that insurers are also arguing for changes to the state system in California, with many calling for substantial rate hikes to offset the potential losses and higher cost of reinsurance.
Currently, wildfires are burning in California, although in terms of structural damage, 2023 is currently less impactful than last year, but things could change quickly.
At the same time, the 2023 Atlantic hurricane season is now underway, and as last year’s hurricane Ian in Florida reminded the market that it only takes one major landfall in the wrong place to drive significant economic and re/insured losses.
