US Home Insurance is Dominated by 8 Companies

What’s in this post?
Exploration of a specific insurance line of business: Homeowners & Farmowners

Geospatial outlook

From the perspective of respective market shares, the U.S. industry is dominated by 8 major underwriters for this line of business.

Specifically, the top 8 underwriters represent more than $35 billion net earned premiums in 2017. The total industry net earned premiums was around $85 billion in 2017. Beyond the top 8, the industry is heavily fragmented.

This might be explained in part by the relatively homogeneous territorial widespread, characteristic of homeowners and farmowners insurance policies.

Insurance risk outlook

After selecting 2,594 insurance companies statutory filings, Ledger Investing platform indicates an average historical industry paid loss ratio net of reinsurance of 68.73 percent of earned premiums.

There is a wide spectrum of expected loss ratios from insurance companies. It can be observed when plotting the incurred loss ratios for homeowners and farmowners policies as reported at the end of the year 2017.

Loss Ratios distribution: Incurred 2017

Payment schedule outlook

Premiums are collected upfront, therefore there is no uncertainty attached to the payment schedule. Insurance losses and their payments follow a schedule that is uncertain and takes place over many years following the policies issuance.

The homeowner and farmowner line of business develop relatively rapidly. This means that losses are known and settled quickly. It is common to differentiate between long tail and short tail insurance risk. Specifically, when looking at the average historical industry net paid duration, we observe 1.44 Years for the 2,594 insurance company filings observed.

We can interpolate an industry development profile, which might be a form of approximation for the expected forecasted development pattern.

Historical Industry Net Paid Developments

It is possible to read the net paid loss ratio as being the area under the curve plotted hereabove.

Coverage outlook

Homeowners and farmowners policies differ in coverage. Both policies cover personal property and liability exposures, however, the scope of coverage varies significantly. Main distinctions include business personal property, care, custody and control, business pursuits exclusion, and homeowners property limitations.

The table below describes at a high level the nature of risks that are covered by insurance companies.

NAIC Description of Homeowners & Farmowners

The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories.

They released the Property & Casualty product coding matrix below. 
This is effective Jan 1st, 2017 and provides a helpful indication regarding insurance risks coverages.

Property & Casualty product coding matrix

Conclusion

In order to achieve transparency and improve investing in insurance risk, we need great interactive representations of industry lines of business and complex statutory filings data. 
This implies looking at insurance as a multi-dimensional space, where volume of business matters as much as geography, types of coverage, effective durations of contracts and expected payoff ratios.

Ledger’s mission implies being able to describe insurance risks from very different natures at scale in a standardized way but without compromising the specific nature of each insurance lines of business.

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