A recent report from Risk Strategies suggests property insurance buyers with locations exposed to climate change-related events will see significant reductions in coverage capacity, as well as higher deductibles and pricing well into 2023 following Hurricane Ian, as reinsurers grow increasingly concerned about inadequate values and peril losses.
The report observes that this trend is not only being seen in Commercial Property, but also with catastrophe (CAT)-exposed homeowners’ policies, especially in Florida. Meanwhile, secondary perils are increasing in frequency, says Risk Strategies, which is leading to costly claims and stress on carrier profitability.
The report notes that CAT models are now being expanded to include projected exposures to secondary perils, while underwriters are relying on these results to set limits, deductibles, and rates in problematic areas.
Risk Strategies suggest that reinsurers are growing increasingly concerned about inadequate values and primary/secondary peril losses which are driven by climate change, as balance sheets are being impacted by investment volatility, leading to a reduction in capital.
It writes, “The reinsurance market tightened in January 2022 and continued through mid-year renewals. Hurricane Ian will make the end-of-year/beginning-of-the-year renewal cycle extremely tough. The 2023 CAT market has all the ingredients for a very hard market in 2023.”
The property market itself will continue to be tight for the remainder of the year, says the report, and will tighten even more in 2023 as the impact of Hurricane Ian on 1/1 Treaty renewals echo across the industry.
The report states that under their Treaty programs, primary insurers will be expected to retain more risk, and will see material reductions in available capacity and the price of available capacity will be significantly higher. In turn, these changes be passed on to buyers with higher rates, higher deductibles and a lower limits for all CAT perils.
Concluding, Risk Strategies says that buyers who up to date on property value trends, well protected from exposures, and have robust risk management practices in place will benefit from more favourable pricing and terms than those falling short and/or are CAT exposed.
“Rate disparity between good risks without CAT and poor risks with CAT will be greater in 2023. Good risks without CAT will see single digit rate increases while poor risks with CAT will see increases of 50% or more. Wind deductibles in CAT prone areas will jump dramatically from 3% – 5% to as high as 15%,” It adds.
Meanwhile, the Governor of Florida, Ron DeSantis, recently announced that he is planning to call a Special Session in December to address solutions to stabilise the state’s property insurance market following Hurricane Ian.
DeSantis says he is working with the Legislature on a session to introduce more competition and policies that will aim to lower prices for consumers, among other issues.