Climate exposures, a reversal of COVID-19 pandemic risk trends, and rising inflation have made a significant impact on US home insurance providers.
In the past seven years, the industry has seen a steady increase in loss cost and severity across perils, according to the LexisNexis 2022 US home trends report. These perils include wind, hail, fire and lightening, non-weather-related water, weather-related water, theft, liability, and other perils.
This year’s report tracks property exposures and losses through long-term claims data for the period between 2015 and 2021. The data represents between 88 million to 91 million homes across all 50 states and Washington DC, showing trends by peril for severity, frequency, and location.
“The biggest takeaway might be that we seemed to have exited the COVID era in 2021,” said George Hosfield (pictured), senior director of home insurance at LexisNexis Risk Solutions. “There were a couple of parallel trends that were affected by COVID that seemed to have reverted. For example, theft claims dropped significantly during COVID because people were home all the time. Last year, we saw it creep back up again.”
Theft peril severity and loss cost rose in 2021, reversing a five-year decline, as more people returned to the office. However, liability perils continued to slide, with loss cost decreasing 13% and severity down 23%. The report noted that the large decrease overall could be a continuation of the pandemic effects from 2020, when there were fewer social interactions and “decreased legal system availability.”
Climate risks continue to be the major concern for US homeowners and insurers. Although loss cost and frequency decreased across all perils in 2021, the seven-year trend shows a steady increase over time. Wind and hail, for instance, had an average increase of 18% per year in the home trends report.
All-peril severity rose 7% compared to 2020, while an overwhelming majority (95%) of catastrophe losses were caused by hail, wind, and weather-related water perils. For Hosfield, the unpredictability of weather events underscores the importance of looking at longer-term trend data for carriers who want to build more accurate cost forecasts.
“Weather drives so many claims in property insurance and it's inconsistent from year to year, so we take a longer view to see through some of the noise that might be happening,” Hosfield explained.
He pointed out the most significant anomaly in the 2021 report was the deadly February freeze in Texas, which drove a huge spike in weather-related water claims. Louisiana and Texas experienced the highest loss cost in 2021, followed by Colorado and Nebraska, which had the highest lost cost on average from 2015 to 2021.
“Whether it’s a major hurricane that hits one year, a big freeze event, or a catastrophic wildfire, [the impact of] those things tend to even out over time. That’s why the seven-year trend is important,” Hosfield continued. “When you look over the longer trends, you can see the average cost of a claim in a state.”
Apart from the frequency and severity of weather events, carriers should also be mindful of the cost of repairs driven by inflation. Claims are also becoming more expensive and complex as home technologies become more sophisticated, the LexisNexis report noted. “In 2022, what we've seen year to date is the cost of building materials, labor shortages, and supply chain issues driving up the cost of repair,” Hosfield affirmed.
Multi-year trends provide perspective that can help carriers transcend seasonable variability when they evaluate their business performance. But for Hosfield, regardless of the annual picture that emerges, it’s clear that climate risks need long-term management.
“It may not all be in the same place every year, but there are more natural catastrophes happening. Whether hurricanes or wildfires, hailstorms and windstorms in the Midwest, these events will continue to happen,” Hosfield told Insurance Business.
Ultimately, the LexisNexis data serves as a helpful benchmark for carriers to track their performance against. “If they’re seeing trends that are better than the industry, they’re probably doing something right,” said Hosfield.
“But they see areas where they're performing worse, it gives them a good opportunity to dig into that issue in their business. They can look for ways to improve their performance, whether it be in underwriting or claims, to ensure they can appropriately deal with the changing dynamics within the industry.”