The U.S. Property & Casualty Crisis: How It’s Going for Insurers and the States They’ve Left
America’s home insurance crisis
By now, if you haven’t heard about insurance companies (large and small) and their max exodus from the most risky states, you may have been living under a rock. Ironically, if you have been living under a rock, you might not be able to get insurance for that home due to ever-increasing risks (like rock slides) brought on by climate change.
Insurance solvency is nothing new. But over the past few years, increased catastrophic-level natural disasters, along with high inflation that makes rebuilding even more expensive, have caused insurers to rethink which states they’re willing to take risks in. This has meant many insurance companies are refusing to write new business in a given state, or even exiting the market entirely, forcing current customers to scramble to find new coverage – possibly only with state options left.
The hardest hit states include Florida and California, which are losing insurance carriers willing to write business in the state at all. In other places like Louisiana and Oklahoma, rates are increasing by double digits. Nowhere in the U.S. is truly safe though, as average home insurance premiums across all states are still rising in 2024, even after a 19.8 percent increase between 2021 and 2023.
For many property owners, the insurance landscape is scary and bleak. Even the largest brand name insurance carriers are finding it unfeasible to keep writing new policies in states like California that’ve seen particularly large wildfire and flood losses.
Opportunities for new insurance players
When one door closes, another opens. At least that appears to be the case in Florida, where eight new property insurers just got approval to enter the Florida homeowners insurance market in April of 2024. These insurers now think writing policies in Florida could be a profitable endeavor thanks to changes to Florida’s insurance laws that came about after its 2022 Insurance Special Session.
Similarly, in California, a change in insurance laws could allow new insurers to enter, and existing insurers to commence writing new policies again. This future scenario hinges on insurers’ ability to factor both reinsurance costs and predictive modeling for future catastrophes into their rates.
Currently, California’s Proposition 103, approved by voters in 1988, limits insurance companies’ rate-setting abilities to historic loss data. Not surprisingly, a hundred years of data from historic losses doesn’t do a great job at predicting how much money a company will need to pay out when it faces a large-scale natural disaster in 2024. This leaves insurers pricing policies too low because historical data can’t justify the real cost of insuring today’s risks.
At the same time, historical data doesn’t account for the predicted risk reduction that modern fire mitigation techniques can provide. This leaves insurers pricing what might be lower-risk policies (thanks to innovations in risk reduction) too high for consumers to afford.
The California Department of Insurance is aiming to enact insurance reform laws in December 2024 to address both sides of this issue by allowing insurers to use predictive modeling that takes climate change and everything from community-to-federal-level investments in risk mitigation into account.
While nothing’s certain yet, companies like Allstate say they’d return to the California market in quick fashion if they had the legal ability to set premiums where they need them to maintain profitability. All eyes will be on California and its regulations, as homeowners currently face diminishing insurance options, and the state’s FAIR Plan (insurer of last resort) insures far more people than it was designed to.
Property owners vulnerable to insurance fraud and scams
Just as insurers pulling out of states has made room for new and innovative insurance companies to take their place, it’s also created an environment ripe for scammers and fraudsters to prey on desperate homeowners.
This isn’t “new” news, but in Florida, the widespread problem of contractor fraud continues to plague the state, its homeowners, and its insurance market. One of the most notorious scams happens when contractors go door-to-door after a large disaster, promising to fix damage and take care of all the insurance details, only to take insurance checks and run.
In California, Alameda County District Attorney Pamela Price is suing multiple insurers for allegations of intentionally underinsuring homes to both make their rates appear more competitive and avoid higher claims payouts. Unfortunately for them, if the allegations prove true, knowingly under-insuring homes is a violation of the state’s insurance laws.
It’s easy to see how property owners in states with very limited insurance options can be taken advantage of. For any home or business owner trying to get property insurance, particularly in the riskiest states with limited insurance options, it’s important to take a few simple steps to verify the insurance company, agency, or even contractor you want to work with is on the up-and-up.
These include:
- Looking up the company or agent’s name with your state department of insurance
- Asking for the agent’s license number and verifying it with your state department of insurance
- Getting license, bonding, and insurance information from any contractors and verifying their business is in good standing before moving forward with them. You can search your state’s Secretary of State website to find businesses and their status.
- Don’t give money to any contractor before work is completed, or without a signed contract. Particularly when they’re working on insurance claims, contractors are accustomed to doing the work and collecting the money later – not the other way around.
Easily verify producer licenses and appointments with AgentSync
This won’t help regular homeowners avoid insurance scams, but if you’re working in the industry, there’s one surefire way to verify every producer is properly licensed and appointed before any business goes through. Check out AgentSync to learn how you can build automatic compliance checkpoints into your entire insurance sales lifecycle.
About AgentSync
AgentSync builds modern insurance infrastructure that connects carriers, agencies, MGAs, and producers. With customer-centric design, seamless APIs, automation, and unparalleled service, AgentSync’s solutions provide data intelligence and streamlined onboarding and compliance management processes that reduce costs, increase efficiency, and get producers ready to sell in hours instead of weeks. Founded in 2018 by Niranjan “Niji” Sabharwal and Jenn Knight, and headquartered in Denver, CO, AgentSync has been recognized as one of Denver’s Best Places to Work, a Forbes Magazine Cloud 100 Rising Star, and as an Insurtech Insights Future 50 winner, and was ranked 65 in Forbes – America’s Best Startup Employers 2023. To learn more, visit www.agentsync.io.