The sixth iteration of LexisNexis’s annual “Home Trends Report” paints a troubling picture for the US homeowners’ insurance market, thanks to worsening catastrophic events.
According to the “2021 LexisNexis Home Trends Report,” catastrophic weather events – such as wildfires, hurricanes, and floods – were some of the largest drivers of losses for the home insurance industry. Catastrophic events accounted for 39% of all homeowners’ insurance claims in 2020; the highest percentage for the industry in the last six years, LexisNexis reported.
LexisNexis also said in its report that loss cost in 2020 also increased across all perils by 6% year-over-year, following an upward trend that had been observed over the past six years. The analytics company suggested that this increase will likely continue through 2021.
As the loss cost and frequency for all home perils both increased in 2020, some states experienced these increases more than others. LexisNexis identified Louisiana as the US state with the highest loss cost in 2020 due to wind claims during its active hurricane season – with 2021 poised to complicate matters for the state even further thanks to additional catastrophic events such as Hurricane Ida. But in terms of overall loss costs over the 2015 to 2020 period, it was Colorado and Nebraska that ranked highest, due to experiencing 7-9 days of hail each year.
"With catastrophe claims driving losses and reinsurance costs higher, it's imperative that insurers have the most recent peril-related trend data and an analytics partner who understands how by-peril trends are changing over time," said LexisNexis Risk Solutions senior director of home insurance George Hosfield. "Basing underwriting and pricing decisions on accurate and up-to-date data help insurers to meet loss-ratio objectives and growth targets, as well as support a better customer experience for consumers by helping homeowners avoid escalating costs."
Other key findings of the report include:
- Wind: Wind frequency, loss cost and severity all increased significantly in 2020—frequency increased by 42% this year and loss cost by 63%. 2020 marked the largest wind loss cost recorded in the last six years.
- Hail: Loss cost and severity of hail claims declined in 2020, while frequency remained steady. However, catastrophe claims made up 62% of all hail claims this year and the frequency of hail catastrophe claims increased a significant 9.9% year-over-year.
- Fire and lightning: The 2020 wildfire season, the most active on record, led to increases beyond 2017 and 2018 levels in both loss cost and severity for insurers. The proportion of catastrophe losses also increased. California accounted for the most loss cost, severity and frequency of fire and lightning claims, with 37.2% of all catastrophe claims nationwide in 2020.
- Non-weather-related water: While the six-year trend for water claims not related to weather continued to climb, 2020 did see a decrease in loss cost compared to 2019 – likely a result of people spending more time at home and perhaps increased use of smart water leak detectors.