Moody’s: Home insurer premiums up, profits down

Despite the fact that homeowners’ insurance rates in the U.S. increased an average of 23% in 2023, according to Bankrate, the credit rating firm Moody’s is reporting that carrier profit margins are down, prompting many insurers to launch profit-boosting strategies in the face of increased costs.

“Profitability in the U.S. homeowners’ insurance sector has been weak in recent years as a result of exposure growth in catastrophe-prone areas, persistently high weather-related losses and rising costs to rebuild and repair homes,” Moody’s says in a new report on the start of the sector. “Homeowners insurers have responded with sharp increases in premiums and tighter policy terms, and some have exited high-risk regions.”

Among the report’s key takeaways:

• Over the past decade, the average combined ratio for the U.S. homeowners line was 101.3%, indicating insurers paid out more in claims than they received in premiums.
• Insurers have responded by raising rates, tightening terms and shedding underperforming business. Nearly all states have seen double-digit rate increases in homeowners insurance over the past five years.
• Carriers are reducing exposure to high-risk areas.
• Insurers of last resort (aka residual markets) now represent roughly 3% of premiums covering homes in high-risk areas that are not covered by the private market, as private carriers pull back from high-risk areas.
• Policy responses to physical climate risk shape the insurance market. Greater use of physical adaptation and risk mitigation will help insurers, governments, businesses and consumers manage physical climate risk. The (re)insurance industry could contribute by developing more sophisticated data and modeling and innovative products.

The release of the report corresponded with a Moody’s blog post penned by Chief Research Officer for Insurance Solution Robert Muir-Wood about the major risks shaping today’s insurance landscape. Those risks include:

• Climate change;
• Unprecedented economic shocks;
• Coverage crises;
• Global supply chain stress;
• Geopolitical strife;
• Aging infrastructure;
• Cybersecurity uncertainty; and
• Long-tail liabilities.

“These risks are affecting all businesses, the business of risk itself, and the state of the risk landscape,” Muir-Wood writes.

See also:

• Metro areas with the most wildfire loss exposure
• How surplus lines can help California’s troubled home insurance market
• Florida’s property insurance market is showing some promise