Perspectives on Property Insurance in Connecticut

Transcription

1 Perspectives on Property Insurance in Connecticut Shoreline Preservation Task Force Hartford, CT June 6, 212 Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist Insurance Information Institute 11 William Street New York, NY 138 Office: Cell: (917)

2 Hurricane History in Conecticut Connecticut Gets Its Share of Hurricane Hits 2

3 Track of Long Island Express Storm of 1938 Great New England Hurricane of 1938 a.k.a. Long Island Express caused severe damage through much of the Northeast 6+ Deaths $38 million Source: WeatherUnderground.com, accessed February 4, 26.

4 Storm Season of 1944: A Busy one for the Northeast Three storms affected New England in 1944, including the Great Atlantic Hurricane 46 deaths $1 million damage 19mph gusts in Hartford Source: WeatherUnderground.com, accessed May 31, 26; NOAA loss & fatality figures.

5 Storm Season of 1954: The Northeast Hit Again New England areas hit by Carol & Edna two weeks apart Carol: 8-1 ft. floodwaters in Providence Edna hits Cape Cod Combined: 8 deaths, $51 million losses Source: WeatherUnderground.com, accessed May 31, 26; NOAA loss & fatality figures.

6 Storm Season of 196: Brenda & Donna Visit New England areas were hit twice in 196. Donna killed 5, $387 million damage along East Coast Source: WeatherUnderground.com, accessed May 31, 26; NOAA loss & fatality figures.

7 Hurricane Gloria Hit in 1985 Gloria 9/27/85 8 deaths $9 million damage Source: WeatherUnderground.com, accessed May 31, 26; NOAA loss & fatality figures.

8 211: Irene Irene: 8/27/211 $4.3 billion damage 8

9 Nightmare Scenario: Insured Property Losses for a CAT 3/4 Storm Insured Losses: $11B Economic Losses: $2B+ $8 $6 $4 $2 $ Distribution of Insured Property Losses by State, ($ Billions) $7 $3 Total Insured Property Losses = $11B, nearly 3 times that of Hurricane Katrina $5 $4 $1 NY NJ PA CT Other Source: AIR Worldwide

10 Increasing Frequency and Cost of Severe Weather 1

11 Nationally, Number of Federal Disaster Declarations, * From , the average number of declarations per year was The average number from was There have been 2,62* federal disaster declarations since Note that 25 was a relatively low year for number of disaster declarations in the period, but that year included Hurricanes Katrina, Rita, and Wilma. *Through May 29, 212. Sources: Federal Emergency Management Administration at ; Insurance Information Institute. The average number from was The number of federal disaster declarations set a new record in 211.

12 53 Federal Disaster Declarations in Connecticut, * Number of Federal Disaster Declarations 4 Is this the start of a new trend? 3 2 Hurricanes From , there were no disaster declarations in Connecticut. Hurricane Bob Hurricane Gloria From there was a federal disaster declaration for Connecticut about once every three years Two of the three disaster declarations in 211 were for snowstorms. *Through May 29, 212. Sources: Federal Emergency Management Administration at ; Insurance Information Institute.

13 1 of the 14 Costliest Insured-Loss Disasters in U.S. History Occurred Since 24 Insured Losses, 211 Dollars, $ Billions $5 $4 $3 $2 $1 Irene was the 11 th most expensive hurricane in US history $4.3 $4.4 $5.5 $6.5 $7.7 $8.5 $9. Taken as a single event, the Spring 211 tornado/ storm season produced the 4 th largest losses in US insurance history $11.9 $13.1 $19.1 $21.3 $24. $25. $47.6 $ Irene (211) Jeanne (24) Frances (24) Rita (25) Hugo (1989) Ivan (24) Charley (24) Wilma (25) Ike (28) Northridge Spring (1994) Tornadoes & Storms* (211) 9/11 Attack (21) Andrew (1992) Katrina (25) *Losses will actually be broken down into several events as determined by PCS. Includes losses for the period April 1 June 3. Sources: PCS; Insurance Information Institute inflation adjustments. 13

14 $4.7 $7.8 $3.7 $12.3 $1.7 $14. $11.3 $6. $7.4 $15.9 $1.3 $7.3 $13.7 $8.6 $11.2 $14.1 $25.8 $33.9 $32.9 $28.5 $36.9 $32.3 $71.7 US Insured Catastrophe Losses Now Average Over Twice the Prior Amount $ Billions, 211 Dollars $9 $8 2s: A Decade of Disaster 21-21: $22B (up 122%) CAT Losses Surged on Near- Record Tornado Activity $ : $91B $6 $5 $4 $3 $2 $1 $ * The new normal for CAT losses: 22 the best CAT year in the past 11 was worse than 5 of the 11 years from *PCS figure as of April 6, 212. Note: 21 figure includes $2.3B for 9/11 losses reported through 12/31/1. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B. Sources: Property Claims Service/ISO; Munich Re; Insurance Information Institute. 14

15 What s So Different About Homeowners (and Other Property) Insurance? It s possible to have many very large claims at the same time Need more liquidity (to pay claims quickly) than for other types of insurance Often need adjuster to inspect the loss on-site; might need to bring adjusters from far away (cost of claim adjustment is higher) Have to be more careful about insuring too many properties in the same general area Most claims paid within a few months Little help from investments in providing funds for claims It s possible to have no large claims in some years When that happens, in retrospect it will appear that the insurer had excess capital and staff devoted to this line 15

16 Homeowners Insurance in Connecticut 16

17 -18.7% -8.1% 5.8% 4.5% 1.% 11.1% 9.5% 7.4% 5.4% 7.8% 11.1% 13.8% 11.1% 15.5% 14.% 1.8% 15.5% 19.6% 18.% 17.9% 16.5% Homeowners Insurers in Connecticut: Yearly Operating Profit*, % 2% 15% 1% 5% % -5% -1% -15% -2% -25% Much of this was wiped out by the catastrophic claims of 211. What s left will be meager returns Connecticut s homeowners insurance market produces modest profits in most years and significant losses in others *Operating Profit is defined as [Losses plus Expenses minus Investment Gain Attributable to the Line] as a Percent of Direct Earned Premiums. Sources: NAIC Report on Profitability by Line by State, various years; SNL Financial; I.I.I.

18 A Comparative Affordability Measure for Connecticut HO Insurance, 29 Rank (among the 5 states) Average Premium $1,16 1 th (higher than most) Average Household Income $92,87 1 st (highest) Premium/Income Ratio 1.9% 34 th (more affordable than most) Although the average Homeowners premium in Connecticut in 29 was higher than that in most states, when computed as a percent of average household income, the premium was a smaller percentage than in all but 16 other states. Source: The H-U-R-T Index (Homeowners Underwriting Resistance Test) Property Insurance Report, February 13, 212, published by Risk Information, Inc., Dana Point CA, using data from the NAIC s report, released January 212, on 29 Dwelling Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/Cooperative Unit Owners Insurance.

19 28-9 Connecticut HO-3 Insurance Average Premium Growth, by Property Insurance Amount Insurance Amount Percent of HO-3 homes 28 Avg Premium 29 Avg Premium 28-9 Percent Change in Avg Premium $15, to $174,999 $175, to $199,999 $2, to $299,999 $3, to $399,999 $4, to $499,999 $5, and over 5.5% 8.8% 39.6% 22.% 1.% 1.4% $617 $671 $812 $1,48 $1,34 $2,39 $625 $676 $817 $1,51 $1,37 $2,54 1.3%.7%.6%.3%.2%.7% The latest NAIC data of this type is for 29. The table above covers 76% of homes that are covered by HO-3, the most common policy type. Sources: The NAIC s report, released January 212, on 29 Dwelling Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/Cooperative Unit Owners Insurance, and the report for 28 released a year earlier; I.I.I. calculations

20 14% 12% 1% HO & CMP Premiums: 12-Month Percent Change, Monthly, June 1999 April 212 Recession HO CMP Hard market Latest HO premium growth rate: 3.5% 8% 6% 4% 2% % -2% '99 ' '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 CMP premiums declined for over two years Sources: U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index, Series IDs: PCU and : PCU ; National Bureau of Economic Research (recession dates); Insurance Information Institute. 2

21 Residential Construction Price Index, Monthly, * Index (1986=1) Annual Construction Price Changes 22: -.4% 23: +2.% 24: +6.5% 25: +6.1% 26: +6.4% 27: +2.4% 28: +5.5% 29: -.9% 21: +3.3% 211: +5.9% This measures only the cost of materials for construction, not labor. 14 '1 '2 '3 '4 '5 '6 '7 '8 '9 '1 '11 '12 The cost of building a home rose by 45% from the start of 21 through the end of 211. But price changes didn t occur evenly, and didn t match change in the Consumer Price Index. Note: Recessions indicated by gray shaded columns. *Data for Jan 212-Apr 212 are preliminary Sources: U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index, Series ID: PCUBRES--BRES National Bureau of Economic Research (recession dates); Insurance Information Institute. 21

22 Flood Insurance Wind vs. Water Isn t an Issue for Property Owners with both Flood and Property Insurance 22

23 41,94 NFIP Policies in Force in CT at end of 3 rd Quarter

24 Number of Flood Insurance Policies In Force in Connecticut, Feb 212 Middletown Stamford Fairfield Norwalk Stratford Bridgeport Greenwich Westport Old Saybrook East Haven West Haven Stonington (town) Groton* 831 1,325 1,322 1,271 1,7 1,22 1,57 1,79 1,823 2,173 2,748 2,655 2, , 1,5 2, 2,5 3, *Includes City of Groton, Town of Groton, and Groton Long Point Association Source:

25 Private Flood Insurance is Available in CT At Least 22 Brokers are Licensed to Sell Private Insurers Excess Flood Insurance in CT Some private insurers also provide first dollar flood insurance, particularly for areas that are not eligible for NFIP policies Some of the largest HO insurers, and some smaller but still substantial insurers, sell excess flood insurance 25

26 Insurance Information Institute Online: Thank you for your time and your attention!

27 Historical Hurricane Strikes in Fairfield County, CT, Fairfield County population is double what it was in the 194s Source: NOAA Coastal Services Center, Insurance Info. Institute.

28 Historical Hurricane Strikes in New Haven County, CT, Source: NOAA Coastal Services Center, Insurance Info. Institute. Population in New Haven County is nearly double what it was in the 194s

29 Historical Hurricane Strikes in Middlesex County, CT, Population in Middlesex County is 3 times what it was in the 194s Source: NOAA Coastal Services Center, Insurance Info. Institute.

30 Historical Hurricane Strikes in New London County, CT, New London County population is more than double what it was in the 194s Source: NOAA Coastal Services Center, Insurance Info. Institute.