Instead of 2022 bringing stability to the Property and Casualty (P&C) industry, catastrophic events (CAT) resulted in a volatile market. Although the Florida coast was the hardest hit, CAT in other states contributed to the high underwriting losses of all P&C insurers. Estimates vary for the Total Cat Insured losses in 2022; however, the latest reports calculate in excess of $125B.
The losses for 2022 continued the trend of a 5 to 7 percent loss every year for the last 10 years. Predictions are that similar losses will continue into 2023.
Significant Reasons for 2022 and 2023 Losses
Insurer losses are up due to Hurricane Ian, inflation, and adverse property insurance environments in Florida and other Gulf States. CAT events in other states like wildfires in California and Colorado, hailstorms and tornadoes in Colorado, Kansas, Oklahoma, and bordering states, contributed to the loss.
Hurricane Ian, a Category 4 storm, hit the southwest coast of Florida in September 2022. It was the deadliest hurricane to hit the area since 1935 and the third-costliest weather disaster on record. More than 100 people died. Winds reached 155 mph with an estimated loss exceeding $65 billion. This figure does not include personal auto and other losses.
To help P&C carriers reduce their losses, Florida insurance laws were amended. Current legislation seeks to create a Florida Optional Reinsurance Assistance program which, among other things, would allow eligible insurers, at near market rates, to buy hurricane reinsurance. Although these measures may help Florida carriers, other states suffered CAT losses in 2022.
In December 2022, Northern California was hit with a 6.4 magnitude earthquake followed by massive storms through the state’s coastal regions. Havoc was caused by unprecedented rainfall and high winds that occurred as far south as Los Angeles, and those storms continued throughout January 2023.
Capacity and Terms & Conditions
Capacity. The 2022 CAT losses were found in almost all states. Fires, wildfires, extreme cold, floods, and power outages, were found across the country.
A carrier seeking to maximize its profits must be aware of its capacity. Capacity generally depends on the geographical location. Insurers in states hit with high losses in 2022 experienced decreased capacity.
Going forward, carriers will analyze the foreseeable loss and make decisions on whether to retain coverage and extend its catastrophic reinsurance coverage or to altogether pass on reinsurance coverage.
Terms and conditions (T&C). Carriers can protect themselves from unwarranted and excess losses by thoroughly reviewing the terms and conditions of their policies. Some are electing to scale back the scope of their coverage. Clients should be fully informed so they can add additional coverage when necessary.
The Excess and Surplus Marketplace Offers More Latitude for Terms and Conditions
Many large carriers are investing in E&S specialty divisions to take advantage of the E&S increased latitude in terms and conditions. We will see insurance carriers entering the marketplace in 2023 with very limited distribution strategies giving the advantage to smaller, more versatile wholesale brokerage firms.
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