Triple-I: U.S. Homeowners Insurers Face Economic Headwinds

For immediate release
Contact: Michael Barry, Insurance Information Institute (Triple-I), 917-923-8245

 
NEW YORK, Feb. 3, 2022—U.S. homeowners insurance premiums are rising after years of record-setting natural disasters and as increasing construction material prices drive up the cost of repairing and rebuilding homes, according to an Insurance Information Institute (Triple-I) analysis released today.

Insured claim payouts from 2021’s tornadoes, hurricanes, wildfires, flooding, and other natural disasters, such as Texas’ freeze event in February, totaled $92 billion for U.S. auto, homeowners, business, and government-backed insurers, according to Aon Catastrophe Insight. Insured claim payouts arising from natural disasters cumulatively totaled more than $400 billion for U.S. private and public insurers over the past five years (2017-2021), Aon reports. U.S. insurers paid out billions of dollars in insured claims in the aftermath of the hurricane seasons in 2017 (Harvey, Irma, Maria), 2018 (Michael), 2020 (Laura), and 2021 (Ida). December 2021 alone included a deadly tornado outbreak which impacted eight states as well as Colorado’s Marshall Fire.

“When a disaster affects a wide area, demand for materials and labor puts pressure on prices,” said Dale Porfilio, FCAS, MAAA, Chief Insurance Officer, Triple-I. “While this has been exacerbated by pandemic-related supply-chain and labor-market disruptions, these issues should abate as COVID-19 becomes more manageable. Yet the longer-term trend – rising insured losses related to natural disasters and population shifts into disaster-prone areas – is likely to continue.”

Based on the industry’s underwriting results, U.S. homeowners insurers have struggled to collect more in premiums than they pay out in claims. The combined ratio—the percentage of each premium dollar U.S. homeowners insurers spent cumulatively on claims and expenses—stood at 107.3 in 2020, when 12 named storms made U.S. landfall, and is estimated to reach 110.4 in 2021, the Triple-I noted. Put another away, U.S. homeowners insurers paid out $1.07 in claims and expenses for every $1 in premiums collected in 2020. That number is expected to rise to $1.10 for every $1 in premiums collected in 2021. 

The recent spike in lumber costs – a key component in calculating a home’s replacement cost – has further complicated dwelling coverage renewal estimates and places upward pressure on homeowners insurance premiums, Porfilio added. The nation’s supply chain bottleneck also has made appliances scarcer and more expensive. A standard homeowners insurance policy provides coverage for the structure of the home as well as a policyholder’s personal belongings (e.g., furniture, electronics, clothing).

“Even before the pandemic and its disruption of materials and labor supplies, cost factors associated with construction were rising faster than both the Consumer Price Index and insurance premiums,” Porfilio said. “In the event of a loss, homeowners want their damaged homes rebuilt to their initial condition. Therefore, it is essential for policyholders to work with their insurers to make sure the dwelling coverage amount on their homeowners’ insurance policy reflects the home’s current replacement cost.”

Triple-I recommends homeowners conduct an annual insurance policy review with their insurance professional to ensure there are no gaps in coverage and to make policy adjustments as necessary.

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