Extra, extra! The state of the Personal Lines market is headline news these days, as increasingly more property owners face challenges in obtaining Homeowners insurance in catastrophe-prone areas and beyond. Some carriers are going so far as to pull out of states at high risk of floods or wildfires entirely.

What's Driving the Challenging Property Insurance Market

So what's the problem?

"Today's difficult Property insurance market has been fueled by a perfect storm of rapidly growing catastrophe exposures due to an increase in frequency and severity of severe weather events; a challenging legal environment in key states; drastic changes in carrier appetite; and higher rebuilding costs as a result of the rise in materials and labor expenses," says Brian Foley, RPS National Personal Lines Practice leader.

While California, Florida and Louisiana traditionally have been hotbed states for reinsurers and carriers, the potential for large natural disaster losses has extended beyond these areas.

"Any location with a catastrophe component has made the Property market challenging. Ten years ago, while reinsurers were concerned about spreading their risk, they were often able to take a simplified approach by balancing hurricane-prone states like Florida with large, nearly uncapped books of business in the Northeast," explains Foley.

"Today, however, these same carriers are under immense pressure to ensure they're not overly concentrated in any area prone to catastrophic events along the entire coastline — and not just in Florida and the Gulf Coast."

In fact, many more properties are now prone to hurricane-related wind and flood damage. According to CoreLogic,* more than 32 million single-family residences and one million multi-family residences are at moderate or significant risk of sustaining damage from hurricane-force winds. Estimated damage could potentially result in combined reconstruction cost value of $11.6 trillion. On top of that, about 7.8 million homes, with a combined reconstruction cost value of $2.6 trillion, have direct or indirect coastal exposure that makes them susceptible to storm surge flooding.

"As a result, reinsurers are seeking rate adequacy and rebalancing their portfolio so they're not too heavily concentrated in one area. With less reinsurance capacity, carriers are carrying more of the risk and ultimately also raising rates, changing their appetites, or exiting markets altogether," says Foley.

5 Ways Agents Can Navigate a Tough Personal Lines Market

So how should an agent deal with the turmoil? Foley offers some advice:

  1. Take the time to read various industry publications to understand the numerous factors driving today's market in the states where you write business.
  2. Educate insureds on why premiums are escalating and/or certain coverages are unavailable. "While Personal Lines is a highly transactional space, explaining the various issues behind higher prices, coverage changes, non-renewals and carrier exits will bring real value to an insured's understanding of the state of the industry," says Foley.
  3. Use technology to augment your ability to educate insureds. Digital quote-rating platforms enable agents to market to various carriers at one time. "Use these platforms instead of going to five different carrier sites for quotes and instead spend the time educating insureds about what's going on in the market," advises Foley.
  4. Demonstrate to clients that you're remarketing their policies. Show clients you aren't simply renewing their policies but are going to market to obtain pricing and coverage terms from several carriers to better fit your insureds' needs.
  5. Leverage wholesaler relationships to find solutions in the Excess and Surplus (E&S) market. With carriers pulling out of certain states or ZIP codes, non-renewing or selectively choosing business where they want to offer terms, having a strong wholesaler relationship will help you find coverage solutions for your clients. "There is a lot more business moving to the E&S world as the appetite in the admitted market is shrinking," notes Foley. "While exploring your admitted markets, be sure to also leverage wholesaler relationships to open more doors. A strong wholesaler might bring four or five additional carriers to the table on any one particular risk as well as unique solutions that the admitted market cannot provide."

5 Tips to Help Your Clients in Today's Market

Now that you've helped yourself, it's time to guide your clients through this tough time. Speak to your clients about the following issues to improve their coverage and their position in the market:

  1. Understand the importance to clients of insurance to value (ITV). While the Personal Lines market has done a much better job than Commercial Lines in obtaining accurate valuations for homes (because of mortgage requirements and inspections), it's important for clients to understand why it's essential to get accurate values. "Ultimately, if there's a loss and the client is underinsured, a homeowner could be hit with a penalty," explains Foley. "If there is a total loss, the client won't be able to build the home to its replacement value if the insurance amount isn't enough. This point is especially important now for an insured to understand, as we're seeing not only rate increases but also ITV values going up to better align with today's cost to rebuild. Clients in some cases are getting hit twice with higher premiums as carriers seek both rate adequacy and proper valuations."
  2. Know the quality of the insurance provider. Explain to clients why purchasing the least expensive policy option isn't prudent. "Clients buy insurance to be able to recover from a catastrophic event, so it's important to make sure the carrier is stable," says Foley. "An insured wants to be placed with a carrier that will pay quickly based on the same terms agreed upon when the policy was purchased."
  3. Build and/or rebuild a home using quality materials. Clients building or rebuilding homes, depending on where they live, should follow current building codes. And they shouldn't skimp on using materials that will help protect the home. For example, don't forgo putting in hurricane-resistant windows. Using quality materials not only will help mitigate damages but can also help reduce insurance costs.
  4. Get Flood insurance. Flood damage is expanding into areas previously not at risk. "Federal flood maps are outdated and fail to consider changing weather patterns and torrential downpours, which are now occurring everywhere," explains Foley. "Therefore, even if a home is located outside of the Federal Emergency Management Agency's (FEMA's) flood zones, it's still at risk and needs coverage." There are many private Flood insurance markets available for areas inside and outside of FEMA flood zones. These markets may also be able to offer higher limits than available through the National Flood Insurance Program (NFIP) and may have more robust coverage.
  5. Don't use a Homeowners policy for everyday claims. A Homeowners policy is intended to make the insured whole after a catastrophic loss. It's not intended to be used as a home maintenance policy. A homeowner with multiple claims may lose market access, as insurers are looking to write profitable insureds — those without a large number of losses. Given the state of the Property market and that placing coverage is becoming more difficult in certain areas, it's more important than ever to educate the insured on the effects of having a lengthy claims history and the importance of not looking to their Homeowners policy as the first means to repair smaller issues to their homes.

    For example, if the home suffers water damage and the cost is $2,500 for repairs, in lieu of having the insurer pay $1,500 after the policy's $1,000 deductible, the client should pay the full amount if possible. "If the insurer pays the claim, not only will the client's premium likely increase the following year if there are two or three claims within a certain period of time, but some carriers have a low threshold for losses in the last three to five years, particularly in areas where coverage is difficult to obtain. They'll non-renew the policy, and potential replacement carriers may not be willing to write the account," warns Foley.

So speak to your clients about the state of the market, help their insureds better protect their properties against risk, reach out to your wholesale partners for coverage solutions in the E&S markets, and you'll be able to ride out the Personal Lines storm unscathed.

Sources

* "Climate Change-Influenced Hurricane Season Could Threaten an Estimated 33 Million Homes, According to CoreLogic," CoreLogic, 1 Jun 2023.

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