Homeowners insurance companies are being hit by a costly combination of severe storms and high inflation. They just experienced their worst year in a decade, with storms that cost their business dearly. more than 100 billion dollars– and customers suffer in the form of higher prices and fewer options, like some companies choose to exit risky markets altogether.
A new report from S&P Global Market Intelligence revealed that U.S. home insurers last year recorded their worst year since 2011, recording a net combined ratio – or proportion of their total losses to the premiums they collected – of 110.5% (all that exceeds 100% represents a net loss). This represents an overall loss of more than $101 billion.
“Inflationary pressures, a devastating wildfire in Hawaii, and a record billion-dollar loss from convective storms weighed on the industry’s bottom line in 2023,” the report said.
High inflation led to increased the cost of settling customer claims and made the reinsurance policies that businesses buy to protect against losses more expensive. Additionally, a series of severe storms that caused enormous property damage have taken a toll on the industry: the wildfires in Hawaii in August 2023 alone, for example, cost insurance companies $61.5 billion.
As dangerous storms become more frequent and costly, market conditions do not improve for the A $152 billion home insurance industry.
S&P found that only two of the nation’s 20 largest home insurers…Chub and America Mutual Insurance – made money from their home insurance lines last year. Widespread losses have forced insurers to increase their rates, passing on their costs to consumers. Increasing prices is the simplest lever that insurance companies have to increase their returns: Homeowners across the country have faced price increases of 10 to 12 percent over the past year.far exceeding inflation.
In some markets, home insurers have gone out of business altogether, citing operating costs: in Florida, one of the most expensive markets in the country due to its exposure to Atlantic hurricanes, nine insurers closed their doors or merged with competitors between 2021 and 2023. This lack of competition has only pushed premiums higher. Other factors include inflation, more frequent storms and high pricing trends in the reinsurance market. Insurers pay high rates for policies that protect them in case they suffer huge losses in a single storm.
“Insurance premiums charged in the state of Florida have skyrocketed over the past two years. Part of that is reinsurance costs,” said Charles Nyce, a Florida State University professor and insurance expert. Fortune. “In recent years it has been very expensive, and some insurance companies can’t get it at any price.”
Last year’s hurricane season was relatively mild, boosting corporate returns in Florida, one of their largest markets. But meteorologists expect this hurricane season to be exceptionally costly.
“The 2024 Atlantic hurricane season is expected to be well above the historical average number of tropical storms, hurricanes, major hurricanes and direct impacts to the United States,” said Alex DaSilva, senior forecaster for the AccuWeather hurricanes. wrote in a March forecast. “All indications point to a very active and potentially explosive Atlantic hurricane season in 2024.”
Major hurricanes are far from the only threat, however. Recent deadly hailstorms in Texas and Oklahoma and the threats of wildfires in the West highlight how more common perils can also present costly threats to insurance companies – and these types of weather events are only becoming more common, putting even more pressure on insurers.
“There is certainly an increased perception of threat from climate risks,” said Steve Evans, an insurance industry analyst. Fortune.
