Insurance buyers are facing the hardest property market “in a generation,” an industry paper states, meaning buyers should expect to see increasing premiums.
A white paper titled “Hard Market Cycle Arrives: Inflation, Natural Disasters, and More Straining Property Insurance Markets,” from the American Property Casualty Insurance Association (APCIA) and University of South Carolina Associate Professor Robert Hartwig, outlines the market challenges and urges loss mitigation for homes and properties.
Rapid economic inflation is a key driver of the hard property market. According to the paper, the U.S. inflation rate accelerated to a 41-year high of 8.0 percent in 2022.
However, property insurance claims rose even faster than inflation, contributing to significant losses for carriers. The prices of single-family residential home construction materials have climbed 33.9 percent since 2019, with trade services up 27 percent.
Adding to insurer losses, the U.S. suffered at least ten catastrophes causing over a billion dollars in losses for the eighth consecutive year in 2022. Last year, there were 18 weather/climate events with losses exceeding $1 billion each, according to the National Oceanic and Atmospheric Administration.
Also impacting the property insurance market are social inflation, supply chain constraints, and historic cost increases for reinsurance, essentially insurance for insurance companies.
“The combined effects are resulting in the hardest market cycle in a generation,” Karen Collins, APCIA vice president of property and environmental, said in a statement. “Commercial and personal property lines customers, particularly those in high-risk regions, may feel the effects of recent, elevated cost trends.”
Preliminary estimates suggest the property market’s combined ratio, how much insurers pay out in claims versus how much they charge in premiums, will reach nearly 108% for 2022.
In response to these challenges, the personal and commercial property lines will likely face continued rate adjustments and potentially “stricter underwriting,” APCIA warned.
The insurance industry encourages property owners to mitigate potential losses by hardening homes and businesses.
“Mitigation is the key to easing the pressure on costs for everyone,” Collins said in a statement.
Research from FEMA and the National Institute of Building Sciences shows that every $1 spent on natural hazard mitigation in new code construction can save $11 in disaster repair and recovery costs.
Several of the recommended mitigation strategies are:
When it comes to property insurance, the white paper advises owners to consider adding automatic inflation guard coverage, ordinance and law coverage, and extended replacement cost coverage to boost their financial protection.
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