Coverage cuts, digital claims and other changes impacting the P&C market

May 15, 2024 5:30 AM

Enjoy complimentary access to top ideas and insights — selected by our editors.

The proliferation of risks impacting the property and casualty insurance market means that insurers have to be constantly aware of the latest developments that are reshaping their business.

On the West Coast, the California Department of Insurance (CDI) announced in March a sustainable insurance strategy proposal that would allow the use of catastrophe (Cat) modeling to improve the availability of coverage. The move, however, did not prevent State Farm from announcing on March 26 that it was cutting 72,000 policies in the state, citing wildfire risks.

"State Farm's latest action seems more related to their larger fiscal situation nationally than the pace of the administrative procedures around the Cat modeling and reinsurance pass through regulations," Amy Bach, executive director of United Policyholders (UP), recently shared via email with Digital Insurance.

Bach has long been skeptical about the merits of Cat modeling, writing in a July 2023 letter to CDI attorney Jon Phenix, "We firmly believe that allowing the unfettered use of Cat models for rate setting will create more problems than it will solve."

Instead, Bach proposed that the CDI should allow insurers to apply a trend factor to past catastrophe losses to recognize the increase in wildfires, or an industry-wide catastrophic loss experience model.

The increase in secondary perils like wildfires is one of the key insights in Marsh McLennan Agency's 2024 Commercial Property Insurance Trends, which highlights the significant factors influencing the commercial property industry and outlines strategies for navigating these challenges.

The report cites AM Best, which shares that secondary perils account for higher total losses than primary perils. Tornadoes, hailstorms, flooding and wildfires are among the secondary perils posing significant risks, with floods ranking as the highest loss leader in the United States.

The Marsh McLennan report highlights how accurate risk assessment is paramount in informing decisions regarding coverage modifications and loss prevention strategies. It also emphasizes data utilization in diversifying risk management portfolios.

Meanwhile, the J.D. Power 2024 U.S. Property Claims Satisfaction Study found that customers are taking advantage of the greater availability of digital tools to file claims faster, but that this does not necessarily lead to increased satisfaction, as repair wait times are still typically longer than expected.

"These types of digital solutions (claim reporting, photo submission, digital status updates) can absolutely help improve the cycle time and efficiency of a claim (both actual and perceived)," said Mark Garrett, director of claims intelligence at J.D. Power. "Insurers need to focus on setting proper expectations of how the process will work and make sure they are getting the right content to customers at the right time and in the right channels."

Catch up on all of our recent coverage of issues impacting the P&C market.

State Farm cuts coverage despite Cat modeling proposal

Wildfire risk is the ostensible reason why State Farm will soon cut thousands of policies in California, despite a proposal by the CDI in early March that would allow the use of Cat modeling to broaden coverage.

The CDI's sustainable insurance strategy proposal includes an agreement with insurance carriers to underwrite in disaster-prone areas at least 85% of what they write in other areas not prone to disasters. But the Cat model plans have not won over everyone.

In a July 2023 letter to CDI attorney Jon Phenix, Amy Bach, executive director of United Policyholders, wrote, "We remain unconvinced that Cat models are fully taking into account the coverage reductions that insurers are implementing through high and multiple deductibles and limits on indemnification for water and smoke damage."

Read more:

California catastrophe model didn't prevent State Farm cuts

Insurance agent taking pictures of a damaged car on a mobile phone.

megaflopp - stock.adobe.com

Higher expectations for digital claims lead to lower satisfaction rates

Homeowners suffering from the rise in the number of extreme weather events across the country may now have digital tools at their disposal to file claims, but are still unhappy with long repair wait times, according to the J.D. Power 2024 U.S. Property Claims Satisfaction Study.

"The challenge is customers using digital tools have a greater expectation for speed and efficiency in the claim, so when they need to repeat information or call for updates on what's going on, for example, this has a much larger negative impact on these customers," Mark Garrett, director of claims intelligence at J.D. Power, told Kaitlyn Mattson, managing editor of Digital Insurance, via email.

Customers who use digital tools do have a faster claim cycle time but it doesn't always equal higher levels of satisfaction, according to the study. Non-digital users typically have a repair cycle time of about 28 days, while those that use digital tools, on average, wait 15 days. However, those who say the process took as long as expected had an average repair time of 11 days.

Read more:

Customer satisfaction with claims is down: J.D. Power

Data reporting pushback could frustrate climate-related insurance solutions

The National Association of Insurance Commissioners (NAIC) issued a call for property market data from insurers in March, which is meant to address the impact of climate change on insurance, and concerns about availability and affordability.

However, the initiative is getting resistance from some of the very states, such as Louisiana, Florida and Texas, which stand to benefit from the data collection, Charlie Sidoti, executive director of nonprofit innovation hub InnSure, told Michael Shashoua, senior editor at Digital Insurance.

NAIC's data call will help the organization get a more accurate understanding of the "protection gap," which refers to 50% of all catastrophe losses being uninsured nationally in the U.S. A few states not collecting data is a problem, but if that becomes as many as half of all U.S. states, the impact for insuring climate change losses could be global, Sidoti said.

Read more:

Property market data reporting refusals hamper refusers' insurability

Commercial property risks require proactive approach, report recommends

A recent Marsh McLennan Agency report highlighting the major factors driving fluctuations in commercial property insurance rates proposes that businesses adopt a more proactive approach to risk management in response to changes in the industry in the upcoming year.

Among the key insights from the agency's 2024 Commercial Property Insurance Trends report is the identification of a noticeable uptick in losses attributed to historically non-modeled secondary perils, such as tornadoes, hailstorms, flooding and wildfires. Individual secondary peril events can result in losses upwards of $10 billion, according to the report. Despite this, only a small fraction of global flood losses are insured, highlighting a significant protection gap in the market.

According to the report, risk management will be key in responding to such industry trends. Marsh McLennan Agency underscores the need for market cycle awareness, advocating for more accurate underwriting submissions and fostering stronger client-underwriter relationships.

Read more:

Marsh McLennan Agency: Commercial property trends of 2024

Extreme weather insurance costs rise amid overall homeowner rate increases

The average premium for homeowners insurance rose by $273 to $1,723 in 2023, up 18.85% on the previous year, according to research by Guaranteed Rate Insurance LLC, the homeowners insurance subsidiary of mortgage lender Guaranteed Rate.

The study on rates also found that Guaranteed Rate's customers increased their use of private coverage for flood insurance by 163% in the past year for zones where it's mandatory.

"Extreme weather events have become increasingly common and account for 70% of losses, so insurers have seen costs rise in many areas," Jeff Wingate, executive vice president and head of insurance at Guaranteed Rate, recently told Bonnie Sinnock, capital markets editor at Digital Insurance's sister publication National Mortgage News, via email.

Read more:

Homeowners insurance rates rose nearly 19% in 2023