Nearly halfway through 2023, this year has shown many insurance challenges related to property insurance and reinsurance. Increased frequency of natural disasters, economic concerns, and poor market performance have all resulted in a hardening property insurance market. These challenges have resulted in large premium increases and more restrictive underwriting guidelines. Market Scout announced a 9.3% average increase on property insurance rates in the first quarter of the year, and rates are anticipated to continue to rise throughout the year. Key industries to expect high renewal rates include manufacturing, hospitality, and habitational type risks.
Natural Disasters, Opportunistic Repairs, Fire Hazard Reports
According to a report released by AM Best, the property and casualty insurance market suffered $26.5 billion in losses in 2022. This was noted as an additional loss of $21.5 billion from 2021. In the 2023 US Property Market Outlook report by RPS Insurance, $360 billion in losses were estimated to have occurred in 2022. Much of these losses were attributed to Hurricane Ian, noting that Hurricane Ian was the second most devastating hurricane to insurers in U.S. history next to Hurricane Katrina in 2005.
In addition to these national issues, Utah has seen increased disasters in recent years in the form of severe winds, hail, fires, earthquakes, and now flooding from excessive snow fall. In some areas, opportunistic repair companies have worsened losses to insurance companies in Utah. These companies, which follow severe weather events and target affected areas, may employ aggressive sales tactics and provide misleading information to secure work. Storm chasing companies may exploit the distress of homeowners and business owners by offering seemingly “free” repairs or promising significant insurance coverage, only to later submit inflated or fraudulent claims to insurance providers. It is important for property owners to exercise caution and carefully vet any repair company before engaging their services. Working with local, trusted contractors is generally a safer and more reliable option.
Fire hazard has also become a hot topic in Utah. Many insurance providers have adopted wildfire scoring software in the last year that provide a wildfire rating based on the location of the property. Some areas, even those with low protection classifications, are being assigned high wildfire scores and, in many cases, these scores are making the property uninsurable. Developers and investors should carefully investigate what insurance options are available prior to starting a project to verify they will be able to obtain affordable coverage.
Economic Concerns
Economic concerns have had a big impact on property insurance, especially when it comes to the possibility of an upcoming economic downturn and the issues related to inflation. As the risk of recession looms, the risks of property damage tend to increase. Things like unemployment, reduced maintenance budgets, and financial difficulties for individuals and businesses can contribute to more property damage incidents. Insurance companies, in turn, adapt to this heightened risk by reevaluating their pricing strategies and how they assess risks.
Recent inflation has also caused problems for insurance providers and policyholders. It has led to higher costs for settling claims, reinsurance, and operating costs. Inflation riders are now commonly added and automatically increase limits of insurance by a set percentage annually. Coinsurance clauses are also being introduced, which can penalize property owners at the time of loss for not carrying adequate limits of insurance. These measures help insurers to verify that they are receiving accurate premiums for the risks they are taking on, but in turn, customers should carefully review their policies to ensure they are covered properly.
Poor Market Performance
Due to poor market performance in recent years, the restrictions imposed by reinsurers on property insurance have had a significant impact on the industry. Reinsurers are pushing standard insurance companies to be more cautious and selective when accepting risks. Additionally, reinsurers have started to place limitations on available coverages and limits. Many insurers have implemented stringent guidelines for buildings to be insured, including allowable age of a building, construction type, security practices, fire suppression measures, and years of updates. Blanket coverages are also being carefully reviewed and questioned to verify all buildings are insured to value. Property owners should take measures to show pride in ownership and make an effort to ensure their properties are clean and that basic maintenance has been performed.
Conclusion
In conclusion, the property insurance industry is facing significant challenges in 2023. The increased frequency of natural disasters, economic concerns, and poor market performance has led to a hardening insurance market. This has resulted in substantial premium increases and more restrictive underwriting guidelines. Moreover, the escalating number of natural disasters, both nationally and in specific regions like Utah, have added to the mounting losses for insurers. Repair scams and the threat of wildfires have further exacerbated the challenges faced by property insurers. Additionally, economic concerns and inflation have necessitated adjustments in premiums and the introduction of inflation riders and coinsurance clauses to mitigate risks. Considering these developments, property owners should prioritize property maintenance, comply with insurers’ guidelines, and explore insurance options carefully with their agent to ensure adequate coverage at affordable rates.
