American home insurers faced massive losses last year because of population growth in disaster-prone regions and other factors, according to global credit rating agency AM Best.
Between 2010 and 2020, California, Florida, Georgia, North Carolina, Texas, and Washington accounted for more than half of the country’s population growth. All six states are prone to severe weather, AM Best noted.
“Population trends show residents increasingly moving toward regions that are more prone to hurricanes, severe convective storms, or even wildfires,” said David Blades, an associate director at the firm.
A key measure showing the struggle of the insurance industry is the combined ratio, which measures the profitability and financial health of insurance firms. Values above 100 percent indicate losses for the companies, while those below 100 percent indicate profits.
Last year, the combined ratios exceeded 100 percent in 17 states, according to AM Best. The ratio remained below 100 in New England and the South Atlantic region but surpassed it in the Pacific, Southwestern, and Rocky Mountain areas.
“A growing population means an even larger rise in real property development and thus in insured values,” said Christopher Graham, senior industry analyst at AM Best. “Construction in catastrophe-prone areas adds to flood risk. It also increases the risk of wildfires in areas prone to them due to human activity, as well as utility companies.”
AM Best criticized “restrictive regulatory environments” in several disaster-prone states for adding to the challenges faced by the home insurance sector.
Homeowner Burden Rising
With home insurers facing high costs, homeowners are also bearing a burden.A LendingTree survey found that almost a third of Americans were struggling to keep up with their home insurance premiums. More than a quarter were worried that their homes could soon become uninsurable, with some receiving nonrenewable notices from their insurance companies.
“The wildfires and hailstorms in Colorado caused billions of dollars in damages, which has led to significantly higher premiums,” she said.
“If you live near the coast, there’s been unprecedented rate hikes due to storms and flooding. The costs can become so much of a shock that homeowners often consider moving because the insurance premiums are now making their home unaffordable.”
It pointed out that weather forecasters predict a “lively hurricane season,” so additional rate hikes can be expected next year in many coastal regions. Big insurers such as Farmers, State Farm, and Allstate are leaving states such as Florida and California as they see these places as high risk, according to the report.
“It’s possible that the highest-risk areas will become uninsurable,” said Betsy Stella, vice president of Carrier Management and Operations at Insurify. “However, where there’s demand, typically a supplier will appear. The question will be—at what cost?”
“Mitigation is the key to easing the pressure on costs for everyone,” she said.