Catastrophe-prone property insurance rates increased in the fourth quarter of 2020, with hurricane-prone property in Florida and wildfire-prone property in California seeing some of the largest increases.
That’s according to the latest analysis from MarketScout, which reviews movements in the personal and commercial property insurance markets on a quarterly basis.
MarketScout’s findings tend to apply to reinsurance markets in many cases, either in real time or slightly behind.
In the case of property insurance in Florida, it is a bit of both, as reinsurance rates have increased along with primary coverages.
For California properties exposed to forest fires, this is again a trend observed for reinsurance programs also covering these policyholders.
MarketScout reports that the Personal Lines composite rate rose 6.3% in the fourth quarter of 2020, while the Commercial P&C composite rate rose 7.1%.
On the personal side, prices for high-value properties rose an average of 8.2%, for homes valued at over $ 1 million.
This indicates that ongoing price increases are likely for these large properties, MarketScout believes.
Richard Kerr, CEO of MarketScout, commented on personal property rates in the fourth quarter, saying, “Rates are up slightly across all areas of personal insurance, with high net worth homeowner rates the highest. Wealthy clients buy more homes to get away from it all and if they don’t buy something new, they are renovating the ones they already own. Homeowners lucky enough to own properties with a home replacement cost exceeding $ 1,000,000 bore the brunt of most rate increases, particularly in the fourth quarter of 2020. ”
Once again, it is the disaster prone property areas affected by market losses that experience much larger increases as prices rise.
Kerr explained, “For homeowners lucky enough to own a beach or mountain home, the increases are more severe. Homes in California bushfire areas or hurricane-prone sections of Florida are subject to rate increases of up to 20 to 30 percent. The only way to offset large rate increases is to shop around for insurance and limit coverage or increase deductibles. “
On the US side of the P&C market, real estate is another area where rates continue to climb.
Commercial real estate rates increased an average of 9% in the fourth quarter of 2020. However, the fluctuations currently observed are not as aggressive as those of the past.
Kerr said, “Composite rates for P&C insurance have traded in a relatively narrow corridor over the past ten years compared to the ten-year period 2001 to 2010, when rate movements were considerably more volatile. Improved underwriting tools, catastrophe modeling and more thoughtful reinsurance placements have eliminated most of the severe peaks and troughs in the market.
“Simply put, underwriters are smarter than they were 15 years ago. Outstanding underwriting and technology tools help make the market more stable. “
This indicates that rates are perhaps becoming more sustainable from the bottom up, which we have said that the reinsurance market needs to move towards more stable earnings over the long term.
As capacity continues to decline in some of the most disaster- and loss-prone regions of the United States, the opportunity for cat underwriting specialists and capital to relocate increases, potentially increasing the need for support. in reinsurance capital over the next year.
Continued momentum for major personal and commercial property lines is expected to persist into 2021, which should also provide perhaps much needed support for reinsurance pricing going forward.