MarketScout says commercial real estate prices rose an average of 9.3% in the final quarter of 2022 and residential real estate prices rose an average of 7% to 7.3%.
The interest rate increases did not occur evenly across the country. Catastrophe-prone areas, particularly California and Florida, saw personal property insurance rate increases of 30% to 40%. Similarly, commercial properties in areas with high disaster exposure saw average rate increases as high as 25% to 30%.
Ballooning costs of natural disasters
The National Oceanic and Atmospheric Administration (NOAA) says 18 major natural disasters cost $165 billion in losses in 2022. This makes 2022 the third costliest year for natural disasters on record.
On the west coast, wildfires have caused enormous property damage and destruction. The National Interagency Fire Center says there were 68,988 wildfires in 2022, up from 58,985 in 2021. More than 7.5 million acres burned in 2022. On the opposite side of the country, hurricanes have caused problems in Florida. Munich Re says Hurricane Ian caused about $100 billion in losses and about $60 billion of that was insured.
These losses affect property insurance. In a survey by the Council of Insurance Agents and Brokers (CIAB), 56% of respondents reported an increase in commercial property claims in the third quarter of 2022, up from just 39% of respondents who reported an increase in the second quarter. Those who answered the survey also noticed the effects on the insurance. In addition to rising interest rates, policyholders also see large increases in deductibles and reduced capacity.
The situation outside of California and Florida
Disaster-prone areas see some of the highest rate increases, but policyholders in other regions are not immune to natural disasters or rising insurance rates.
Severe storms, including ice storms and tornadoes, have caused extensive damage in various states. According to the Insurance Journal, Winter Storm Elliot dumped more than 40 inches of snow on Buffalo, New York, in December 2022. The insured damage could total about $5.4 billion, according to Karen Clark & Co.
The effect of high inflation
Natural disaster losses are not the only factor affecting property insurance costs.
High inflation drove up costs in 2022, and the property insurance market is feeling the impact. The Bureau of Labor Statistics says the consumer price index rose 9.1% in the 12-month period ending June 2022 — the highest increase since 1981.
When costs are higher, damage claims become more expensive. The CIAB says the impact of inflation on insurance was more noticeable in the third quarter of 2022, although inflation had cooled somewhat. According to CIAB figures, commercial real estate prices increased by 11.2% in the third quarter of 2022.
What the challenging property insurance market means for you
If you own a home or business, the current property insurance market can have a direct impact on you.
- Your prices may increase. Since rates are rising for most policyholders, you should expect higher rates at your next renewal. Depending on your situation, the interest rate increase can be relatively modest or significant. If you live in an area with a high risk of natural disasters or if you have had a recent claim, your rates could increase dramatically. MarketScout also notes that homes with values above $1 million are seeing slightly higher rate increases than homes with values below $1 million — an average of 7.3% compared to 7%.
- You may receive less favorable terms. In addition to higher rates, you may see higher deductibles, meaning you’ll have to pay more out of pocket if you have a claim. But choosing a higher deductible can also be a good way to keep premiums down. Also look for more restrictive coverage terms, lower limits and new exclusions.
- Your agent may need to shop around. If your rates and terms are no longer attractive, your BNC agent may need to look for a better coverage agreement with another carrier. Some areas are seeing reduced capacity, which can make it more difficult to secure coverage. Allow extra time for your renewal.
In this challenging property insurance market, you need an experienced broker on your side. Contact BNC.