Insureds with water damage face double-digit insurance rate hike
Property owners with “significant exposures and sustained losses” can expect rates to climb by 50% to 100%.
Between $8 billion and $14 billion with a “best” estimate of $11 billion is Moody’s RMS Event Response’s projection for the total U.S. private market insured losses from Hurricane Helene.
That was before Hurricane Milton, which saw a rapid intensification that was one of the “most extreme ever recorded,” according to Everstream Analytics. But it landed in Florida as a Category 3 hurricane — a serious risk but far better than the Category 4 or 5 experts expected.
By 5 a.m. Thurs., Oct. 11, maximum sustained winds had dropped to 85 mph, making it a Category 1. However, it still means more damage to Florida and southern Georgia. The storm also set off at least 19 reported tornados, according to Reuters.
It’s not just hurricanes that are driving up insurance premiums: Tornadoes, wildfires, droughts, winter storms, flooding, earthquakes, and heatwaves are all get more severe and costly. Figures that the Insurance Information Institute has compiled on U.S. natural catastrophe estimated insured losses run as follows:
- 2010 — $13.6 billion;
- 2011 — $35.8 billion;
- 2012 — $57.9 billion;
- 2013 — $12.8 billion;
- 2014 — $15.3 billion;
- 2015 — $16.1 billion;
- 2016 — $23.8 billion;
- 2017 — $78.0 billion;
- 2018 — $52.3 billion;
- 2019 — $25.5 billion;
- 2020 — $74.0 billion;
- 2021 — $92,0 billion;
- 2022 — $98.9 billion; and
- 2023 — $79.6 billion.
There’s some variation, but the trend line is increasing. commercial property insurance rates have seen year-over-year increases across 24 consecutive quarters and that rate increases averaged 11% at the end of 2023, the insurance brokerage MarshMcLennan Agency reported.
“High-magnitude catastrophe losses, the enduring challenges of the pandemic on the supply chain, fluctuations in the employment market, and rising inflation have banded together to create a perfect storm that threatens the sustainability of every property portfolio,” the firm wrote.
There is more investment and capital to match bigger markets and insurers’ greater willingness to underwrite risk, bringing some stabilization. However, property owners are caught as lenders and insurers face “rising demand for broad property coverage terms” and the higher costs that go with it.
Exposure increases from “secondary catastrophe perils” such as bigger storms, flooding, hail, and freezing temperatures. In the 2010s, the number of climate events causing at least $1 billion in damage averaged 13 per year. In the 2020s, that has risen to 20.
While the big primary perils have a greater impact, they are also less frequent. The secondary risks have lower costs per event but are more frequent. Secondary perils such as wildfires, tornadoes, and severe thunderstorms are growing in the share of damage that happens, according to AM Best. More than half of insured property losses from 2017 to 2019 were due to those secondary risks.
Property owners with “significant exposures and sustained losses” can expect rates to climb by 50% to 100%, MarshMcLennan says. For example, the New York Times reported that insurance costs include 8% for operating expenses for multifamily properties, citing data from Yardi Matrix.
For many owners, that means putting off renovations that would cut the cost of utilities, which would lower the cost of operation. But they can’t go without insurance to do so.
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