Severe weather is already here. Insurers are experiencing mounting losses, which is causing some of them to leave high-risk areas. The situation has quickly become unsustainable. Although insurers can’t control the weather, they can control their claims – and they can’t afford to wait another day before they do so.
2023 Natural Disasters Broke Records
In 2023, the National Oceanic and Atmospheric Administration (NOAA) recorded 28 separate weather and climate disasters with losses of at least $1 billion each – many led to losses far greater than $1 billion. The total comes to at least $92.9 billion.
The U.S. has never seen so many billion-dollar disasters before. The previous record was in 2020, when there were 22 billion-dollar events. Unfortunately, the 2023 tally is a trend rather than an anomaly: the number of billion-dollar events has been rising rapidly, even when adjusted for inflation. In the 1980s, there was an average of only 3.3 events per year. In the 1990s, this rose to 5.7. By the 2010s, it was up to 13.1. Finally, between 2019 and 2023, the average was 20.4. Last year’s total is a record for now, but if this trend continues, it might not remain a record for long.
Even though only some of these losses were insured, insurance carriers have been dealing with rising claims as a result. Major disasters aren’t the only contributor to rising claims, either: lower-severity storms are driving up total claims costs due to their increased frequency. Swiss Re says insured losses from thunderstorms reached a record high of $60 billion in 2023.
Insurers Experiencing Underwriting Losses Are Fleeing High-Risk Areas
Fitch Ratings says the global reinsurance market reached a tipping point in 2023, when the property and casualty sector entered a hard market. Natural catastrophe events contributed to price hikes of between 20% and 60% at the January 1 renewal.
AM Best says the U.S. property and casualty market recorded a $24.5 billion net underwriting loss in the first half of 2023. This is nearly as much as the underwriting loss for all of 2022, which was $26.5 billion.
As insurers continue to hemorrhage money to pay losses, they’re working to rein in their exposures. Whereas this sometimes involves stricter underwriting requirements, it has frequently meant pulling out of entire states. Both Florida and California have experienced an exodus of insurers. AP News says State Farm and Allstate are a couple of the insurers that have stopped writing new property policies in California, whereas Newsweek says Farmers is one of the insurance companies pulling out of Florida.
The Insurance Market Is Reaching Crisis Levels
As homeowners face skyrocketing premiums and nonrenewal notices, they’re stuck in an impossible position. As Nerd Wallet explains, one homeowner in Louisiana is having to dip into his limited savings to cover higher insurance costs. He thinks he’ll have to move because he simply can’t afford the insurance his mortgage lender requires, but he’s worried no one will want to buy an uninsurable house. He’s not alone, either – many people are finding themselves in this situation.
Insurance carriers are also in a difficult position. They’re pulling out of troubled markets on the coasts because they can’t make an underwriting profit in these places. However, thunderstorms and ice storms can occur anywhere – and those losses are increasing, too.
Something needs to change.
Better Claims Systems Can Give Insurers Some Breathing Room
Insurance carriers need to find a way to continue providing coverage while boosting their profits. One way is to mitigate losses by encouraging policyholders to harden their properties against losses. However, there’s only so much this can do. When a massive hurricane or wildfire strikes, losses will occur no matter how prepared policyholders are. Loss prevention is important, but insurers also need to find other ways to mitigate claim severity.
The answer lies in claims handling. By handling claims more expediently, resolving conditions before they worsen, and reducing conflict and litigation, insurers can drive down loss ratios. Even better, they can do this without sacrificing customer service quality. In fact, a more efficient claims process improves policyholder satisfaction, and may also reduce customer churn.
Insurers Need to Implement New Systems Now
The situation is urgent. Natural disasters are already leading to massive claims, and insurers can expect these losses to continue. Insurers need a modern claims suite that can operate alongside their existing systems today – they can’t afford to wait to rip and replace their core systems.
Our powerful claims suite automates many time-consuming processes and frees up file handlers to focus on impactful activities, all while elevating the policyholder experience with greater visibility and increased communication. The VCA Claim Platform helps insurers take control of claims and drive down loss ratios. Learn more.
