Six Things 8.1.23

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Our New Era of 'Global Boiling'

Paul Carroll, Editor-in-Chief of ITL

Phoenix just wrapped up a month in which the high temperature?exceeded 110 degrees Fahrenheit?every day -- many who simply fell in a parking lot had to be treated for burns from the asphalt. Water temperatures off the Atlantic coast of Florida?exceeded 101 degrees, near the maximum recommended for hot tubs. The average global temperature on July 6 was the hottest on record, and the U.N. says we've entered "an era of global boiling."

Challenged by climate change, home insurers in the U.S. have lost money in five of the past six years and continued to rack up losses in the first half of 2023, according to an article that appeared in The Wall Street Journal?over the weekend. Insurers are raising rates as fast as they can, while narrowing coverage or even exiting troubled markets, the article says, but it quotes a colleague of ours from the?Insurance Information Institute?as saying underwriting losses are expected to continue through 2025.

Progressive said that losses from severe weather last month have consumed 92% of homeowners insurance premiums, according to the article.?

By raising rates and reducing coverage, insurers aren't just tackling their business problems but are sending signals to homeowners that will encourage them to reduce their risks from severe weather. Increases of thousands of dollars in premiums tend to grab people's attention, and media coverage is amplifying the message.?

Still, I think insurers need to greatly accelerate two incipient, data-related initiatives. Insurers need to be much more specific in their risk assessments and communicate them to clients -- don't just tell me what my premium is; tell me that the vegetation around my house and my shake roof have increased my wildfire risk and thus my premium by X percent. Insurers also need to work with regulators to show that they have to be able to use predictive models to set rates, rather than base them entirely on historical data.

Setting rates for the 2020s based on historical data doesn't work when, according to the WSJ piece, insured damage in the U.S. from severe storms, wildfires, floods and other natural disasters averaged $40 billion for the 2000s and $54 billion for the 2010s (adjusted for inflation) while the figure has topped $90 billion in each of the past three years.

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• Lemonade's 'Synthetic Agent' Nonsense
• Insurance in 2030: What Does the Future Hold?
• THE NEXT PHASE OF GROWTH FOR INSURANCE BROKERS
• 'Digital Twins': The Race Is On
• How Millennials Revolutionized Life Insurance
• How to Tackle Litigation Costs
• How to Prepare for Extreme Weather
• SLAYING YOUR DATA DRAGONS