Personal insurance customers in the high-net-worth (HNW) segment are feeling the impact of systemic industry challenges. Carriers continue to take aggressive action to regain profitability after years of mounting losses, resulting in constricted capacity and increased rates and premiums. Historically attractive risk profiles are no longer immune to these sweeping actions, making insurance harder to come by for nearly everyone. This paradigm shift requires clients, advisors, and carriers to rethink their approach to protection.
Throughout 2023 and into 2024, factors reinforcing industrywide restrictions include:
- Catastrophe (CAT) events: According to The NOAA National Centers for Environmental Information (NCEI), the U.S. set a record in 2023 with 28 weather/climate-related disasters that each reached or exceeded $1 billion in costs. These events included 17 severe weather/hail events, 4 flooding events, 2 tornado outbreaks, 2 tropical cyclones, 1 wildfire event, 1 winter storm/cold wave event, and 1 drought/heat wave event. Geography is no longer a predictor of CAT events — New England floods, Texas freezes, and convective storms in the Midwest are major loss contributors. However, the most drastic changes in carrier capacity are in Florida, California, and Texas. In addition to the events themselves, natural disasters directly impact the availability and cost of building materials, fuel, and workers to rebuild and repair damaged property.
- Non-CAT water damage losses: Water damage from burst pipes, toilets, washing machines, dishwashers, and other plumbed appliances have become some of the biggest loss drivers in the HNW market. Homeowners policies increasingly restrict coverage for properties experiencing repeated water damage losses and may require the installation of water monitoring and automatic shutoff devices as a condition of coverage availability.
- Regulatory environment: Insurance regulators’ primary responsibility is to protect consumers. However, unintended consequences further complicate market conditions. Carriers that cannot obtain adequate rates to remain viable in a given market often restrict new business, making it challenging for property owners to access appropriate insurance protection or choice in the marketplace. Some carriers are refusing to write any new business in California as a result of the current regulatory environment.
- Reinsurance: U.S. property catastrophe reinsurance rates went up significantly in 2023, with increases ranging from 25% to 50%. Higher reinsurance rates often have a domino effect, resulting in higher policy premiums. Clients in CAT-prone states such as California and Florida currently bear the brunt of extreme premium hikes, but the impact is increasingly felt countrywide.