The Four Reasons Behind the 45% Increase in Home Insurance Losses Paid
Between 2017 and 2023, carriers in the U.S. endured an increase of more than 45% in payments for home insurance losses
This significant rise has puzzled many in the insurance industry. Taking a closer look at the data covering these last six years, I identified four reasons behind these notably adverse losses.
1.Substantial increase in catastrophic losses — The primary reason is the substantial increase in catastrophic losses paid between 2017 and 2023, with a staggering 39% rise due to catastrophic events alone. Climate change has led to a surge in such events and their origins.1 Wildfires, hurricanes, winter freezes, floods, severe storms and convective activity have all become more frequent. Additionally, the severity of these catastrophic events continues to escalate. The combination of higher frequency and severity of catastrophe losses is one of the underlying causes.
2.U.S. migration patterns — Catastrophic losses are also rising due to U.S. migration patterns. 2020 Census data shows steady population growth in catastrophe-prone areas in the south, west and parts of the mid-west as a result of internal migration. Growing destinations in southern states are more exposed to hurricanes, while western states face a higher risk of wildfires and the mid-west experiences severe convective storms. Accrued migration has led to more insurable homes exposed to catastrophes. In fact, the percentage of home losses paid due to catastrophic events rose from 39% to 46% of total losses paid in the last six years.
3.Cost of labor and building materials — This is a familiar topic that applies to both catastrophic and non-catastrophic events. Inflation and labor shortages have driven up the costs to maintain, repair and replace homes. These are primary causes for non-catastrophic losses paid. The increase in non-catastrophic losses from 2017 to 2023 is a staggering 53%. Simply put, the cost of home building materials and labor has risen significantly, contributing to higher non-catastrophic losses.
4.Shift in perils — There have been fewer theft and liability claims in the U.S. between 2017 and 2023. This is likely due to behavioral changes, such as more people working from home and more cautious domestic social activities. Unfortunately, these decreases have been more than offset by a significant rise in other perils. Weather events, both catastrophic and non-catastrophic, have driven up insured home losses, with combined hail and wind losses increasing by 47% during the last six years. Home insured losses paid due to fire and lightning increased by 45%. Weather-related water losses, driven solely by weather events, increased by an astonishing 66%. Such escalation is probably, in part, because of inflation, which has driven up the costs of materials and labor.
Additionally, the rising cost of home maintenance is possibly driving some homeowners to delay or reduce maintenance, making their homes more susceptible to losses.
Improving strategies with loss data
Given the unprecedented increase in paid home insured losses, it’s critical for carriers to have detailed loss information. Even more important is the use of granular data across the insurance policy life cycle. This data forms the basis for improved strategies, enhanced customer experiences and new market opportunities. The rise in losses must be accounted for, and higher premiums are not the only remedy. Carriers that leverage appropriate data and technology will find opportunities to better meet consumer needs with relatively less impact on premiums.
Discover how our 3-in-1 solution, LexisNexis® Total Property Understanding™ with advanced data insights can help achieve your underwriting goals. Learn more.
Source: LexisNexis® Risk Solutions 2024 Home Trends Report, copyright ©2024
1NOAA National Centers for Environmental Information (NCEI) U.S. Billion-Dollar Weather and Climate Disasters (2024). https://www.ncei.noaa.gov/access/billions/, DOI: 10.25921/stkw-7w73