AM Best projects further headwinds for U.S. home insurance market
The first half of 2023 saw above-average natural catastrophe losses, while secondary perils added further pressure.
The confluence of inflationary pressures, regulatory moves that challenge rate adequacy and a slew of natural catastrophes during 2023’s first half is pushing AM Best to revise its outlook for the U.S. home insurance sector to negative.
The first half of 2023 saw above-average natural catastrophe losses, as Hurricane Idalia hit multiple states on the East Coast, while California dealt with damage from atmospheric rivers and Hawaii saw one of the worst wildfires in state history.
In addition to elevated natural catastrophe losses, so-called “secondary perils” such as severe convection storms and hail are pressuring the sector, the rating agency reported. As a result, it does not foresee underwriting profitability returning to the sector in the near term.
Rate adequacy challenges have driven some carriers to slow business in CAT-prone states. This included three of California’s largest home insurers as well as a wave of moratoriums on new business in Florida, AM Best noted.
According to J.D. Power, the carriers that remain in these troubled markets have a robust opportunity to expand market share, but the initial customer relationships might be icy.
“We’ve all seen the headlines about insurers leaving states like California and Florida where catastrophic weather claims have been at an all-time high, but this pattern is playing out nationwide, affecting thousands of homeowners in every state,” Breanne Armstrong, director of insurance intelligence at J.D. Power, said in a release. “Insurers are reworking their actuarial maps, confronting state regulations that cap rate increases and struggling with profitability. For customers, this combination of steadily rising rates and sudden abandonment can create irreparable damage to brand loyalty and perceptions of trust.”
Customer satisfaction with home insurance tends to be highest when the policyholder has a tenure of eight years or more. Less-tenured policyholders are generally less satisfied with the overall home insurance experience and are less likely to renew with their existing carrier. They are also less likely to recommend their existing carrier.
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