Despite Rise in Catastrophe Losses, Home Insurance Loss Costs Declined in Recent Years

In 2016, Colorado and Texas homeowners suffered the greatest percentage of catastrophic losses due to extreme weather and other perils, according to a study of home insurance trends.

The six-year LexisNexis Risk Solutions study indicates that despite the rise of catastrophe losses, overall peril loss costs continued to decline.

The second annual LexisNexis Home Trends Report identifies key insurance industry trends by peril – wind, hail, fire, water, theft, liability and other.

Nearly half (48 percent) of all catastrophe losses originated in just two states: Texas and Colorado. The report found that hail and wind caused by thunderstorms – rather than extreme weather events like hurricanes – were the biggest loss causes.

Nationwide hail losses in 2016 reached their highest level since 2011, comprising an estimated 20 percent of all peril losses totaling $8.4 billion in damages. Other top states for hail between 2011-2016 were Montana, South Dakota and Nebraska. Texas, experienced some of the most damaging hailstorms ever in March and April 2016, causing more than $4 billion in damages and breaking records for the state’s most expensive storms.

“The report reveals that not all perils are created equally, and that even within a peril category there will be dramatic geographic differences. Every state has its own nuances,” said George Hosfield, senior director, Home Insurance, LexisNexis Risk Solutions.

“Insurers need data state-by-state and even at more granular levels because location based risk varies greatly from place to place. While this is particularly evident when thinking of cat events like the hurricanes we are seeing in 2017, the same holds true for all perils on both a cat and non-cat basis.”

While catastrophe losses accounted for 30 percent of all claims in 2016, the study found that all peril loss costs continue to trend downward. The key reason cited by the report: the aggregate (all perils combined) frequency remained steady while the aggregate severity declined.

The top states for catastrophe claims were South Dakota, Nebraska, Kansas, Oklahoma and Colorado. The states with the lowest catastrophe losses were Nevada and Oregon.

Water Perils

Another important discovery from the study was the effect of an El Niño-influenced mild winter on water perils, particularly in Northeastern states. Hosfield said the drop in the frequency, severity and loss costs of water claims, driven largely by frozen water and frozen pipe claims, was the result of an El Niño-induced mild winter.

The study did find that claims due to accidental water discharge from burst pipes and leaking appliances are rising. Hosfield said that assignment of benefits fraud has impacted the figures.

Thefts loss costs and frequency are declining, possibility the result of cheaper security alarm options, according to the report. Highest loss costs were found to be along the west coast.

The study noted southern states reported the lowest liability loss cost, with California, Connecticut and New York reporting the highest.

Other key findings from the LexisNexis Home Trends Report include:

  • Wind – After several decades of decline, in 2016, carriers saw an increase in frequency and loss costs due to wind claims, the result of the destruction to Southeastern states by Hurricane Matthew in October. Estimates of total property damage were approximately $10 billion, according to the National Oceanic and Atmospheric Administration (NOAA). Tornadoes and thunderstorms also contributed to the claims spike, particularly in the Midwest. Top states for wind between 2011-2016 include: Colorado, Nebraska, Oklahoma, Missouri and Tennessee. Overall, more than 25 percent of claims were due to wind damage – the highest since 2013.
  • Fire – Fire perils (which include lightning) decreased in loss cost and frequency in 2016. Hosfield said that severity has increased, likely due to consumer choices in furnishings which are counterbalancing fire safety improvements being made. Top states experiencing fire losses for the period of 2011-2016 were Michigan, Maryland, Tennessee and Alabama. The greatest contributors to losses by insurers included the Great Smokey Mountain wildfires in Tennessee, which turned out to be one of the largest natural disasters in the state’s history with more than $940 million in personal and commercial line losses, according to the Tennessee Department of Commerce & Insurance. Lightning from summer thunderstorms in the Southeast and Midwest also contributed to claims frequency.
  • Water (weather-related) –El Niño brought respite to the Northeast in terms of frozen water and frozen pipes claims. Massachusetts, for example, saw $240 million in losses in 2015, but just $29 million in 2016. Florida also saw a decrease in its wind-driven water claims from 2014-2016, but California experienced a severe rainstorm in March 2016 that resulted in a spike in wind-driven rain claims.
  • The overall result, said Hosfield, “really underscores that the trends from year to year are going to be very local in a lot of ways…often the issues can be more local than the state level.”

Hosfield expects that this year’s cat losses will cause certain weather-related perils to tick upwards.

An interactive website offers the ability to view report trend data on a countrywide and statewide level and sort by peril.

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