The US homeowners’ insurance market has encountered its worst underwriting results since at least 2000, with population shifts into regions increasingly prone to weather-related events playing a significant role, according to a recent AM Best report.
The “Migration to CAT-Prone Areas Adds to US Homeowners’ Insurers’ Performance Volatility” report highlights a staggering $15.2 billion underwriting loss for 2023. The loss more than doubles the previous year’s figure and marks the worst in over two decades, with 2011’s $14.8 billion loss being the next highest.
Urbanization and population growth in areas vulnerable to natural disasters are compounding the issue, the report indicates. US Census data shows that California, Florida, Georgia, North Carolina, Texas, and Washington collectively accounted for 53% of the nation’s population growth from 2010 to 2020, all states known for severe weather events.
David Blades, associate director, industry research and analytics at AM Best, noted: “The US population overall grew 7.4% between 2010-2020 but rose 10.2% in the South and 9.2% in the West during the period. Population trends show residents increasingly moving toward regions that are more prone to hurricanes, severe convective storms, or even wildfires.”
According to the report, insurers providing homeowners’ coverage in New England on a direct basis recorded an average combined ratio of 79.3 over the decade ending in 2023. In contrast, combined ratios in the Pacific, Southwestern, and Rocky Mountain regions were above breakeven, with the South Atlantic and Southern regions, including Florida and Gulf Coast states, exceeding 92.
“A growing population means an even larger rise in real property development and thus in insured values,” explained AM Best senior industry analyst Christopher Graham. “Construction in catastrophe-prone areas adds to flood risk. It also increases the risk of wildfires in areas prone to them due to human activity, as well as utility companies.”
Compounding the challenges, several large, catastrophe-prone states have restrictive regulatory environments, complicating insurers’ ability to manage higher loss costs. Insurers are increasingly considering strategic choices to reduce or cease operations in certain markets due to concerns over rate adequacy.
Additionally, capacity tightening in the reinsurance market, driven by the unfavorable underwriting results in the homeowners’ segment, continues to burden primary carriers. As a result, AM Best anticipates that loss ratios will remain pressured, making a near-term return to underwriting profitability unlikely.
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