In its 2023 state of the market report CRC Group’s analysts have highlighted that many E&S insurers in the personal property lines have been pushed to increase their premiums as a result of rising reinsurance rates, impacting customers and the possibility of them getting reasonably priced premiums.
In the US, the coastal market had a challenging 2022 as Hurricane Ian hit Florida, making reinsurance renewals for 2023 even more difficult. According to the report, this will certainly cause rates to increase substantially in 2023, some up to 40% – 50% in coastal areas. Additionally, the cost of construction and consumer demand in CAT-prone areas continues to increase.
Analysts warned that coastal communities could face market availability challenges along with increased rates and deductibles. Louisiana rates are up another 15% over last year and wind deductibles have risen as ten admitted carriers pulled out of the state.
They also noted that, as the Gulf Coast market continues to harden, placing coverage in Florida is difficult The market has pulled back writing with wind since Hurricane Ian/Nicole based on a variety of factors including markets leaving Florida, moratoriums due to Hurricane Ian, exhaustion of aggregate due to wind, and specific risk characteristics.
According to the report, the markets are much more willing to write excess wind business in Florida. Analysts expect that changes in legislation will start to help. They also noted that in Texas, many admitted carriers are writing CAT-exposed business, but at a reduced capacity.
Demand for flood coverage is at the highest level it has been in recent years, according to the report. It noted that. although the number of in-force policies has likely improved, it is estimated that only 15% – 20% of homes carry flood insurance; a disappointing figure considering that the US continues to experience catastrophic flash flooding/heavy
rainfall events.
While the NFIP is working through its Risk Rating 2.0 changes, there continues to be a significant opportunity for the private flood market in 2023. As NFIP premiums rise, the US flood insurance market is turning toward private carriers offering additional options for those seeking coverage outside the federal program, analysts explained.
The report also noted that more markets are available now than there were five years ago, which is working to stabilise private flood insurance rates. Pricing remains competitive as carriers work to provide the broadest possible coverage at a reasonable rate.
Regarding high-value homeowners, the report stated that, over the last couple of years, most of them have been forced to the E&S marketplace – despite very limited E&S markets currently writing business within the high-value space.
Carriers are often required to purchase reinsurance on higher TIV risks, and reinsurance costs are also rising, which are also feeding into rate hikes for insureds as carriers pass those costs on.
Additionally, because of high inflation, the cost of claim payments is also high, especially for high-value homes that tend to submit larger claims due to custom, high-quality materials or features. In Florida, placing higher TIVs, especially with wind, has become extremely difficult.
Brit’s exit from the marketplace will have a huge effect on retention and remarketing in 2023, CRC added. It remains unclear when new high-value carriers will enter the market, but brokers are being creative when underwriting high-value homes.
Coverage is being offered almost like an excess product where homeowners self-insure small losses with a large deductible (approx. 25%). Or, are prioritised to stay within the limits the carrier is offering, meaning insureds may have to self-insure their personal property, loss of use, or other structures because all available limits are required to cover the residence.
Following a severe wildfire season across al Western states, carriers are trying to lower their exposure by either excluding wildfire from coverage, lowering TIV per location, or drastically increasing rates mainly due to rising reinsurance rates.
The marketplace is seeing double to triple-digit rate increases on higher-value homes in wildfire areas, and it is challenging to write coverage unless they are situated in more urban areas such as ski areas.
Regarding the vacant property market, it is expected to be similar to that of 2022, according to the report. The market in general is seeing fewer vacant risks due to the inability to sell property, the condition of property, or location.
Given the real estate market over the past several years, there is not much vacant property sitting on the market, analysts added. However, brokers are seeing a few more submissions now that it is cooling in response to increased interest rates that have slowed home sales. Overall, CRC noted that rates remain strong for this class.
The report also noted that carrier appetites for umbrella business are changing. Insurers are lowering limits per risk due to the growing prevalence of lawsuits and severity of US losses.
Rates and guidelines continue to grow. There is less appetite for youthful drivers, those with prior MVR history, and drivers over age 70. Only 2 carriers remain in the market and both are challenging when it comes to youthful drivers, older drivers, or those with claim history, analysts added.
Finally, CRC highlighted that London markets remain focused on underwriting profitability as they look to write good, profitable business at healthy rates. 2023 will be a year of shrinking capacity and stricter underwriting conditions; reduction in available coverage from the reinsurance market will also have a significant impact.
As reinsurance costs rise, rates are going to continue to increase this year in the London market. Reinsurers willing to consider CAT coverage have reduced their capacity, increased rates, and raised deductibles. This reduction of available capacity and increased cost will force carriers to reduce their writings and pass increased costs on to consumers. Brokers are seeing a push to increase limits to better align with proper valuation due to inflation.
