Re/Insurance and Natural and Man-Made Catastrophic Risks
The US P&C insurance industry has experienced challenges in recent years due, in large part, to increases in the frequency and severity of natural catastrophes, as well as a tightening reinsurance market.
Natural and man-made disasters resulted in global economic losses of USD 280 billion in 2022, the sixth highest on Swiss Re sigma records, and the 16th highest since 1970 after normalising for GDP growth effects.
As private market capacity has declined, the number of Floridians being insured by Florida’s state-run insurer of last resort, Citizens Property Insurance Company, has nearly tripled in less than two years.
According to Global Commercial P&C Insurance Market Review, Florida’s property insurance market has been negatively impacted by contractors who exploited the state’s former one-way attorney fee statute by artificially inflating the cost of insurance claims in collaboration with questionable billboard attorneys. These additional challenges have created unsustainable underwriting losses and have caused the reinsurance market to harden.
Greenberg Traurig explore the natural and man-made catastrophic risks inherent in Florida which have contributed to creating very challenging property insurance markets in the world. We also discuss measures that Florida’s leaders have undertaken to address these issues and help support the struggling market (see Natural Catastrophe insurers losses Outlook).
Insurance reforms in Florida
AM Best is of the view that the insurance reforms passed in Florida’s most-recent legislative special session will lead to much-needed relief to the state’s homeowners market. However, in the near term, capacity will remain limited with high reinsurance costs.
Man-made disasters
The Florida legislature has attempted, several times, to address Florida’s property insurance issues. In 2019, the legislature passed SB 7065 addressing abuses related to assignment of benefits under property insurance contracts.
Later in 2021, the legislature passed SB 76, which implemented new notice requirements related to litigation, addressed attorney’s fees in a limited manner, and reduced claims filing deadlines. The measures were helpful but did not fully address the issues caused by fraud and abuse.
To address the growing problems affecting the Florida insurance marketplace, Ron DeSantis, governor of Florida, called a special session of the Florida legislature in May 2022, during which the legislature passed Senate Bill 2D, which included additional provisions aimed at litigation reform.
Senate Bill 2D also aimed to provide relief to Florida insurers from the hardening reinsurance market by creating the Reinsurance to Assist Policyholders Program, which authorised a $2bn dollar reimbursement layer of reinsurance for hurricane losses directly below the mandatory layer of the Florida Hurricane Catastrophe Fund.
Subsequently, on 28 September 2022, Hurricane Ian made landfall on Florida’s Lee Island Coast. The storm produced winds of over 150 miles per hour and caused massive flooding across the state.
It is estimated that Hurricane Ian inflicted over $50bn in damage on the state, striking yet another blow to the Florida property insurance market.
Soon thereafter, the legislature met in December for its second special session of 2022 and passed Senate Bill 2A, which many industry experts regarded as the most significant property insurance reform bill in recent history.
The bill strengthened Florida’s property insurance market by eliminating one-way attorney fees for property insurance claims, which was the driving force incentivising unscrupulous contractors and their attorneys to file frivolous lawsuits in defence of largely inflated or fraudulent property insurance claims.
Additionally, the legislature passed Senate Bill 4A, which provided property tax relief for homes rendered uninhabitable due to recent storms.
The bill provided $750m for the communities impacted by Hurricanes Ian and Nicole, including $350m to support the entire portion of local government match for Federal Emergency Management Agency (FEMA) Public Assistance, freeing up local funds to undertake additional hurricane recovery and mitigation projects and $150m to the Florida Department of Environmental Protection to support local beach renourishment projects and a new Hurricane Restoration Reimbursement Grant Program.
Natural catastrophe risk
While we do not see a new norm of higher loss growth rates, regular occurrence of multi-billion insured loss outcomes from secondary peril events is new.
Traditionally secondary perils have been less well monitored than primary. Recent efforts to change this should be further progressed.
Flood affects more people around the world than any other peril. Losses from flood have been on an upward trend globally and at a significantly faster pace than global GDP. Through 2011 to 2020, at near USD 80 billion, cumulative insured losses from flood events around the world were almost double that of the previous decade. The flood experience of 2022, with insured losses at USD 20 billion, indicates no let up of the upward trend.
Florida officials have also sought to better prepare the state to withstand the effects of increased natural disasters. In recent years, Florida lawmakers have implemented historic investments to ensure communities are prepared for rising sea levels and flooding.
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FULL Report — https://beinsure.com/impact-natural-catastrophic-risks-to-insurance/
Source: https://beinsure.com/
