Property and Casualty

Perfect Storm Hitting Personal Lines of Insurance

May 14, 2024

A convergence of disruptive forces is hitting the market for personal lines of insurance in 2024, making it extremely challenging for insurers to provide coverage personal property and casualty (P&C) coverage, particularly Home and Auto Insurance.

A convergence of disruptive forces is hitting the market for personal lines of insurance in 2024, making it extremely challenging for insurers to provide coverage personal property and casualty (P&C) coverage, particularly Home and Auto Insurance.  

Escalating impacts of climate change, higher overall costs across markets and other issues have even led major carriers to exit some states, forcing consumers to seek coverage through excess and surplus (E&S) lines of coverage and government-sponsored programs.  

Even U.S. Treasury Secretary Janet Yellen noted, "There is growing evidence that these trends in physical risks have led to a decline in the availability and affordability of insurance in certain areas.” 

We’re still seeing the fallout from our changing environments — in the insurance industry, the natural world and elsewhere. But one result is that personal insurance — if it is available at all — is showing increases on average of 10%-15%, while homeowners in catastrophe-prone areas can expect to see increases of as much as 25%, according to Alera Group’s 2024 Property and Casualty Market Outlook.  

“Insurers will be less willing to serve regions where they cannot secure adequate rates or reduce their exposure to catastrophes,” the report notes. 

Climate change hits hard 

On an environmental level, the growing frequency and severity of wildfires, earthquakes, tornadoes and other natural disasters caused massive losses in recent years, provoking a strong reaction from carriers. Homeowners policies in calamity-prone areas simply became too financially risky to underwrite, so insurers began non-renewing them. We’ve even seen companies such as State Farm, Allstate, Farmers and other large organizations simply pull out of California and other disaster-prone states.  

Indeed, California is often cited as the state that is being hit the hardest by tightening Homeowners coverage, and that’s not necessarily incorrect. However, other states — including Arkansas, Colorado, Minnesota, Oklahoma and more — are also being dropped for Homeowners coverage.  

To be clear, insurance companies don’t want to just write states off and never come back. But there are policy changes that need to be made, and those don’t happen overnight. In California, for instance, companies that left are waiting for the state insurance commissioner to establish new modeling so they can determine the rates that they need to write business.  

Growth in excess and surplus 

In California, Florida, Louisiana, Texas and other states hit hard by climate-related losses, homeowners face limited — and costly — choices for their Homeowners coverage. One option is nonadmitted insurance in the surplus lines market, where rates are significantly inflated compared to the admitted market rates of just a year ago. A home previously insured by a larger carrier could potentially cost at least double for the same coverage through a surplus carrier, though rates are expected to stabilize by the end of the year

The alternative for Californians is the state’s FAIR (Fair Access to Insurance Requirements) Plan, an insurer of last resort that only provides basic fire coverage with strict limits maxed at $3 million. (Floridians face a similar situation.) This is a high limit for some, but it proves inadequate for higher-valued properties. Furthermore, the California FAIR Plan has already been overloaded by a flood of new business from displaced homeowners after the carrier exits we’ve seen. 

Upheaval in Auto Insurance market 

While the Homeowners Insurance situation has been notable, the Auto landscape is also marked with challenges. In just the last year, we’ve seen major Auto Insurance carriers pursue rate hikes of up 25% as they confront rapidly rising costs from escalating accidents, higher repair costs and total losses.  

One problem is that carriers can't get enough in rates to maintain profitability in the face of a changing automotive landscape. One thing that has changed in Auto insurance is that drivers got quantifiably worse during the pandemic. Studies have shown the Covid-19 pandemic had a strong negative impact on the quality of driving on American roads: One study found significant increases in dangerous driving behavior, including a 4.2% rise in distracted driving, a 10% rise in speeding, a 26.3% rise in use of alcohol and drugs and a 42% rise in mobile phone usage during driving. This has led to higher costs as carriers have had to cover this unsafe behavior and the resulting impact on the roadways. 

As a result, carriers are increasing premiums and tightening underwriting standards. For example, many carriers are enlisting third parties and pulling odometer reports to determine a driver’s annual mileage. Previously, these evaluations were done on a more informal basis. Companies could simply say, “We think this client's going to drive 5,000 miles a year,” for instance. But with these third-party odometer reports — which are obtained via the DMV, emissions testing facilities and other methods — companies are looking more closely at drivers’ behavior and habits.   

Also, while some carriers — such as Farmers, State Farm and Allstate — are still writing Auto coverage, other carriers simply won't write a standalone Auto policy without a bundled Homeowner’s policy. All told, an unblemished record, low mileage and a packaged Home/Auto policy are increasingly essential for securing an affordable auto rate. 

No quick resolution in sight 

Looking ahead through 2024, there appears to be no easy solution to stabilize the insurance market across Home and Auto lines. For homeowners, affordable comprehensive policies may remain extremely limited until major carriers can justify reentering the state with practical rates that account for climate risks. 

To find coverage, homeowners are essentially funneled toward a FAIR Plan option or drastically inflated surplus lines pricing. Even surplus lines capacity could dry up if the risk is ultimately deemed too unprofitable. 

Meanwhile, customers can also take concrete steps to protect their property, such as including specific venting that will keep embers out of the home or using Class A fire-rated roofing products, such as composite shingles, metal, concrete or clay tiles. Homeowners can also protect their property against the risk of an earthquake by installing an automatic seismic gas shut-off valve. 

On the Auto side, the upward pricing pressure shows no sign of abating as carriers try to achieve sustainable underwriting profitability. More underwriting hurdles and stringent data verification requirements seem inevitable as companies leave no stone unturned in managing their risk exposure. 

Climate change and the increasingly challenging Automotive landscape are disrupting the insurance industry's risk models and financial viability. As these impacts persist and accelerate, affordable coverage of any type may become a luxury in several states if major corrections in the insurance market do not take place. Both consumers and regulators may be forced to embrace a new reality where extensive risk-based pricing and underwriting become the norm. 

Where to learn more  

For a more in-depth look at strategies for navigating overall P&C market conditions, read Alera Group’s 2024 Property and Casualty Market Outlook. The report provides valuable information on factors driving the current P&C market, with analysis categorized by lines of coverage, commercial as well as personal.    

A qualified agent or broker can help you navigate this complicated world with thorough, clear documentation of risk management programs, claim histories and financials. With more than 190 offices around the country, Alera Group combines local service with national reach and provides individualized, carefully crafted coverage programs that fit each client’s unique needs. 



About the author  

Chelsea Trenkwalder, CIC 
Vice President, Private Client Group 
Legacy Risk & Insurance Services, An Alera Group Company  

A licensed property and casualty insurance agent since 2007, Chelsea Trenkwalder has spent the last eight years specializing in personal insurance solutions while rising from account manager to Vice President of the Private Client Group in Alera Group’s Legacy Risk & Insurance Services office. Her professional credits include the prestigious Certified Insurance Counselor (CIC) designation.  

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