Insurance carriers paid out more than $100 billion in catastrophe (CAT) insurance losses in 2023 and in the first half of 2024, making it the costliest two-year period in history. More than $60 billion in global insured losses have been paid in the first half of 2024, which is 62% above the 10-year average.
The culprit? Severe convective storms have accounted for about 70 percent of those insured losses. Before hurricane season started this year, there were already 12 events that cost at least $1 billion each in insured losses.
These statistics accurately summarize the state of the CAT market. Profitability is no longer so heavily reliant only on a hurricane season. Convective storms and wildfire are now primary perils within the industry, forcing carriers to rely on modeling and historical data to help generate a well-balanced and diversified portfolio. Even with such data, it can be difficult to effectively manage risks and adhere to sound underwriting strategies at adequate prices.
Key Takeaways:
- 2023 saw the largest homeowners’ insurance underwriting loss since 2000 with $15 billion reported, according to AM Best. Population migration to more CAT-prone areas is a major factor affecting the insured loss increase.
- Convective storms such as tornados, hail and straight-line winds are now considered primary perils and account for 70 percent of insured losses.
- Modeling can help underwriters make informed decisions, but further improvements are needed to better predict convective storm activity.
- While wildfire activity has fallen in the last two years, 2025 could be an active year, especially as temperatures get hotter for longer periods of time.
The increase in convective storms and the spread of CAT exposures to areas of the U.S. not bordering the ocean has impacted how carriers are acting, even after a comparatively mild hurricane season in 2023. Despite the lack of property damage in the U.S., there were still 20 named storms in the Atlantic last year. Some industry experts believe we were lucky that more damage to U.S. insurers was not realized given that level of storm activity.
Perhaps that is why carriers have shown little reaction to a less costly storm season from 2023. While rate increases have moderated, they are still occurring. Underwriting for most carriers has remained strategic and conservative. While the market has experienced some relaxation of guidelines like age of construction, the industry as a whole remains fixated on what could happen rather than what did happen.
That hesitancy to overreact is justified by the increase in convective storms and the resulting straight-line winds, tornadoes, hail and lightning. From 1990 to 2022, severe convective storm losses increased at an annual rate of 8.9 percent, according to AON.
Wildfire trends
Amazingly, the market paid out zero dollars for insured wildfire losses for the first half of 2023. Then came the Maui Wildfire, driven by high winds and fueled by dry brush. It destroyed more than 2,200 structures and caused about $5.5 billion in damages. Outside of that CAT event, wildfire incidents have been relatively mild for the last year and a half. Through August 2024, there have been 8,000 fewer documented fires in the U.S. compared to the same time last year, according to Wildfire Defense Systems, an industry-leading fire protection consultant. Acreage burned rose slightly, mainly because of the density of the February 2024 Texas wildfires.
Future wildfire trends can be hard to predict because they are largely based on weather patterns. Prolonged droughts and record high temperatures are the new normal, and recently have occurred from parts of southern California to northern Idaho. The Park Fire this year is an example of a fast-moving fire that burned more than 1 million acres. Fires are common in many areas that for years were extremely rare, and are not limited to densely populated, mountainous areas. The continual hot temperatures dry out areas around buildings, providing added fuel should a fire start.
CoreLogic estimates that 2.6 million homes face moderate to very high-risk rates of wildfire, with 70 percent of those homes located in California, Colorado and Texas. Homeowners should take advantage of mitigation strategies to help lessen the threat to their properties.
Rates and regulations
Rates for the Personal sector have been hovering near record highs for the past couple of years and moderate increases continue. This is in stark contrast to the market six years ago where carriers were battling in a “race to the bottom.”
Give the evolving impact of weather on all parts of the U.S., rising temperatures and inconsistent hurricane seasons, the Personal space seems to be establishing a base rate level for insureds in much of the country. One factor is that recent hurricanes have been characterized more by flooding than high, sustained winds. Part of this “wait-and-see” attitude might stem from the fact that carriers are awaiting adjustments that could be made with pending legal challenges from these storms.
Changing regulations may also have an impact on the CAT market, most notably in Florida where House Bill 837 introduced several measures designed to stifle frivolous litigation. The law took aim at fee multipliers and one-way attorney fees. It trimmed the statute of limitations from four years to two years. Florida may soon be looked at as a model for providing a better atmosphere, allowing them a better chance to be profitable despite the presence of CAT events.
The impact of population shifts
Six states – California, Florida, Georgia, North Carolina, Texas and Washington – comprised 53 percent of the country’s population growth from 2010-2020, according to the U.S. census. All are prime locations for CAT storms based on location and weather patterns. The AM Best report “Migration to CAT-Prone Areas Adds to U.S. Homeowners Insurers’ Performance Volatility,” states that the segment suffered a $15.2 billion underwriting loss in 2023, more than double the losses seen in the previous year.
Adequate pricing becomes more challenging for new construction in these regions because of increased exposure. It is why carriers are constantly looking to balance their portfolio to prevent an overabundance of exposure in certain geographic markets.
Tips for brokers and agents
Brokers and agents can help their clients reduce the impact of CAT events by mitigating risks. Strategies include:
Using third-party resources like Wildfire Defense Systems (WDS). WDS specializes in wildfire mitigation and loss prevention services and is available to Burns & Wilcox policyholders to protect homes from wildfires. WDS is an extra layer of protection and supplemental to local emergency responders.
Reviewing the How to Prepare My Home Checklist from WDS. The guide includes actions homeowners can take to protect their property such as:
- Creating a 5-foot home buffer (0-5 feet). Remove all vegetation and combustible ground covers such as wood mulch within 5 feet of your home. This means all bushes, grass/artificial turf, flowers, trees, succulents, etc., down to bare dirt or hardscape. Remove trees and trim branches that overhang the 5-foot area; the home buffer extends to the sky. Don’t forget your deck too. Install hardscape: Clear the 5 feet around your home including decks/covered porches, under and around the stairs to bare dirt. You may also, use hardscapes such as gravel, pavers, river rocks, DG base, stepping stones, or concrete to create an attractive noncombustible buffer zone. Replace combustible (wood/vinyl) fencing, posts, and gates within 5 feet of the home with a noncombustible fence, such as metal (aluminum, chain link, or iron) or concrete blocks. Remove vines from the home, pergolas, fences, and within 5 feet. Clear and maintain the 5-foot noncombustible buffer area. Clear tree debris, weeds, leaves, and grass regularly. Do not park or store any vehicles, boats, RVs, trailers, or ATVs within 5 feet of the home. Ideally, relocate these stored items in a closed garage or park them at least 30 feet away from the home. Remove all combustible items such as firewood, potted plants, outdoor furniture, trash cans, pet houses, lawn tools, sheds, hot tubs, etc., from this zone.
- Maintaining decks and yard (5-30 feet). Clear and maintain decks and covered porches. On the surface of a deck, patio, or under a covered porch. Clear all tree debris regularly. Remove large rugs and combustible furniture such as wood, wicker, or plastic. Use non-combustible cast aluminum or metal furniture instead. Ensure if you have a few small items, they can easily be moved inside on Red Flag days and keep them out of the 5-foot buffer. You may have up to 10 small, noncombustible terra cotta or ceramic planters with small flowers or plants; avoid woody vegetation or trees in the pots. You may have a few cushions and a small doormat. Maintain the yard. Cut grass to no more than 4 inches and keep watered. Routinely clear tree debris such as leaves and pine needles. Remove dead vegetation, including piles from pruning. Firewood should be stored 30 feet from any structures. Trim trees. Remove tree limbs less than 6 feet from the ground. Trim the upper branches of trees to ensure at least 10 feet of space between the canopies of neighboring trees. Maintain shrubs. Choose low-growing, fire-resistant plants. Relocate any shrubs located under or near trees. Keep low-growing shrubs spaced apart or in small groupings (no more than 3 shrubs or a maximum of 10 feet wide and 10 feet apart from other plantings) that will result in a discontinuous path of vegetation. Remove any privacy hedges or rows of bushes that will create more fuel and a pathway for fire to reach your home.
Evaluating a home’s construction. Roof materials that help protect against heat and fire and using double wrap roof-to-wall connectors instead of clips are ways to strengthen a home’s fire mitigation. Newer, more fire-resistant (e.g., metal) roofs and fire-rate windows are valued by underwriters. These and other mitigation strategies allow many clients to qualify for more competitive rates.
Identifying the proper amount of tree density and considering fire-smart landscaping. Trees can protect a home from hail damage; however, too many trees can be a negative if there are straight-line winds. Regular tree trimming should adhere to the defensible space zones mentioned above. Fire-smart landscaping combines plant selection and upkeep/maintenance strategies
Searching for stability
A mild hurricane season through the balance of 2024 could see more carriers re-entering the admitted markets and create more aggregate availability at the start of 2025. Regardless, the Excess & Surplus (E&S) sector is searching for greater stability. Given this uncertainty, significant changes in rates, capacity and underwriting strategies are unlikely given the market is more focused on the worst-cast CAT scenario than recent results.
The cooling of inflation is helping to level out rate increases a bit, leading to more moderation momentum. Yet various regions have a high dynamic of pricing differentiation. Concern over higher-than-average fire risks in Appalachia, the West Coast and Hawaii this fall could trigger another round of damaging wildfires. Burns & Wilcox has plenty of coastal capacity available despite any concerning headwinds. Contact our team of experts with questions to help navigate CAT Insurance changes.
Contributors: Bill Gatewood, Corporate Senior Vice President, National Personal Insurance Practice Leader, Burns & Wilcox; Chris Siegel, Associate Vice President, Managing Director, South Florida, Burns & Wilcox; Nick Lauria, Chief Fire Operations Officer, Vice President of Operations, Wildfire Defense Systems; Jonathan Mortimer, E&S Distribution Leader, Millennial Specialty Insurance