The head of property outlines the worst situation.
Tropical Storm Debby, a Category 1 hurricane, caused heavy rains and flooding in the southeastern United States this week.
It’s the latest storm in what’s shaping up to be a busy hurricane season in North America, raising concerns that another huge natural disaster might force the property insurance market back into trouble.
Severe thunderstorms and catastrophic flooding caused considerable losses in the first half of the year. According to Munich Re, flooding and two earthquakes caused global insured losses of over $60 billion in H1 2024, which is much more than the 10-year average of $37 billion.
Despite this, the US property insurance market has been seeing weaker circumstances, according to one analyst who talked with Insurance Business.
“The insurance market, particularly in Florida, remains in transition,” said Ben Beazley (pictured), Jencap Group’s executive vice president of property. “There are undoubtedly regions where prices are dropping. Retention rates remain consistent.
“Additionally, there is additional capacity entering the market. There is available capacity in Florida, which is likely the most difficult region to find coverage. There is plenty of capacity along the Texas, Louisiana, Mississippi, and Alabama coastlines.
2024 Atlantic hurricane season – how is the property market coping?
With the hurricane season peaking in September and October, the chances of a strong storm forming off the Gulf and wreaking damage in heavily populated areas remain high.
The National Oceanic and Atmospheric Administration (NOAA) predicts an above-average Atlantic hurricane season in 2024, with 17-25 named storms (average is 14), 8-13 hurricanes (average is 7), and 4-7 significant hurricanes (average is 3). This year’s La Niña phenomenon, characterised by dropping sea-surface temperatures, may lead to stronger storms in the Atlantic.
“The conditions seem to align with predictions of a more active hurricane season, threatening the US coastline,” according to Beazley.
The crucial concern is how much of an impact a nat cat incident would have on the property market, particularly after insurers had several lucrative quarters. According to Beazley, a Category 5 storm hitting a big city such as Miami or Tampa, with losses ranging from $80 billion to $100 billion, may accomplish it.
“The risk is amplified if multiple storms hit in succession, as coverage limits are reinstated after each event,” Beazley told reporters. “Fortunately, retention rates are keeping steady, which is good for the market. A Category 1 or 2 hurricane is unlikely to cause significant damage if the building is well constructed. However, once we hit Category 3, 4, or 5 storms, everything changes.”
What a Significant Nat Cat Event Means for Insurance Brokers?
While the property market is reasonably steady and has enough of capacity, severe hurricane activity this year may make 2025 more difficult for brokers.
“If we get bad storms, we may be thrust back into a tough market like 2023, making placements problematic. On the other hand, if there are no large storms, the market will continue to decline, and we’ll have to work hard to investigate every option as old and new markets release capacity,” said Beazley. He mentioned that there are new managing general agents (MGAs) and Lloyd’s syndicates opening locally, adding capacity.
The real shift, however, may come when large insurers report significant losses, triggering boardroom scrutiny and leading to tightened pricing and reduced capacity. Insurers may need to retain more risk as their treaties attach higher up the program, forcing them to take on more net exposure in catastrophic events.
Despite these potential challenges, Beazley is confident that the global market has ample capacity. Other factors could also influence the impact of a strong hurricane on the insurance market. Landfall location is a critical differentiator in terms of projected losses, for one – “Think Katrina versus a storm like Debby in a sparsely populated area.”
“The only certainty is that the market will go one way or another. If we have storms, it will be a very difficult market again; otherwise, excellent accounts will continue to benefit from better pricing as the year concludes,” Beazley added.
“Many people are falling behind on their October 2023 budgets, especially after the market fell in January, particularly in cat areas. Interestingly, while I expected non-cat risks to experience higher price decreases, we’ve seen good cat-area clients gain. After three years of huge premium hikes, it has been easier for the market to reduce rates in certain locations.
Do you have any ideas on how the current hurricane season might affect the property market? Please share them in the comments section.
