The personal lines insurance marketplace continues to grow, greatly influenced by the strength of an economy that continues to improve. Since 2014, personal lines direct premiums written have generally grown faster than commercial lines direct premiums written, and that growth has been less volatile. Additionally, the economy will greatly influence growth in insurers' exposure base across most lines. "Property & casualty profitability is influenced both by cyclicality and volatility," says Robert P. Hartwig, Ph.D., CPCU, Clinical Associate Professor of Finance, Risk Management & Insurance at the Darla Moore School of Business, University of South Carolina. He notes that the 2017 combined ratio for P&C lines is estimated at 104.1, and 103.5 for personal lines. "Demand for insurance should increase in 2018-2019 as GDP growth continues at a steady and perhaps accelerated pace and gradually benefits from the economy broadly," adds Hartwig, who says that generally, major personal-lines insurers remain price-disciplined.

Homeowners' premiums continue to rise

Homeowners' insurance net written premiums continue to rise (up 152% 2000-2017). Reasons, experts say, include rate increases, especially in coastal zones; ITV endorsements (e.g., "inflation guards") compulsory for mortgaged properties; and resumption of home-building activity. Hartwig believes that the homeowners' line will generate about $1.5B in new premiums annually through 2018, now outperforming private passenger auto and the property & casualty industry as a whole. He finds that growth rates in homeowners are not quite as robust as those found in the E&S market, but still remain fairly strong and relatively recession-resistant. "There are likely some weak spots in the country where the standard market could see some growth challenges, but national carriers will make up for that in other parts of the country," explains Hartwig, adding that regional carriers could see challenges where the demographics are not favorable to new housing construction. Richard Kerr, CEO of MarketScout, says that homeowners policies were priced at a composite of +3% over expiring prices in first-quarter 2018 as compared to +4% in the final quarter of 2017. He detailed the first-quarter 2018 results, noting that homeowners insurers are focusing on geography and claims history. "If you live in Miami and have experienced claims, your rate increase could be as high as 15%," says Kerr. "Conversely, if you are a long-term customer with no claims and live in Denver, you might see a rate decrease of 5%." Tyler Banks, National Practice Leader & CEO, Willis Personal Lines, Willis Towers Watson, concurs that the homeowners market has seen an increase in weather-related claims. "We expect to see a tightening of underwriting guidelines and an increase in rating, particularly in CAT prone areas," he says. "To keep up with the competition, we are seeing carriers offering new coverage options."

Homeowners' rate picture

Experts say that even outside the big CAT losses like hurricanes and wildfires that were in the news last year, 2017 was a record for single events — more than $1 billion in claims paid out for 17 individual events including hailstorms, tornadoes and winter storms. Still, they are not seeing the same rate increases and attention to rates in those areas because the market remains so competitive. Bill Gatewood, corporate vice president for Kaufman Financial and director, Personal Insurance, Burns & Wilcox, says that homeowners' rates are going up a lot slower than initially anticipated. "Six to eight months ago there was going to be a meaningful rate increase in the property market, and a lot of that was being driven based on reinsurance rates come Jan. 1," he says. "As it turned out, reinsurance rates didn't go up much; there's still a lot of capital in the marketplace." Gatewood noted that coastal areas will probably see 5% to 10% increases, and brush areas out west will see similar increases. Much smaller, single-digit increases are happening in the marketplace nationwide. "It hasn't come very fast or been impactful so far," he adds. On coastal business, homeowners has grown significantly in the Excess and Surplus market in the last 10 years, according to Kasey Vaughn, senior vice president at Worldwide Facilities LLC. "People are becoming more aware of the private market and what it has to offer," she says. "On the admitted side, the private market has built their reputation and has been recognized in the market. From an inland perspective, it is growing as well." Vaughn notes that standard markets have better coverage: "Now, it's more about limit. The senior markets have decided if it's $1 million, they won't take a risk on it. Property & casualty rates are coming over to us because of limit and coastal exposure. "Over the last five to six years we've seen rates decline, some as low as 30% to 50% from Texas to North Carolina, to Florida," he continues. "We are seeing this year that rates are holding. But carriers are evaluating and looking to get 5% to 10% increases. There's so much capacity in the market that it's keeping things stable and giving companies growth opportunities." The future of the E&S market is strong, Hartwig adds: "It has the potential to push more flood risk into the private sector."

Renters' insurance comes of age

The renters' side of the business has been growing substantially as well. In the past, insurers have left a lot of money on the table by not pushing rental products, particularly to millennials who have little understanding of the renters' insurance market. In addition, many of the new housing complexes going up are now requiring tenants to have coverage as a way of reducing litigation. "It's a very underserved market," says Gatewood. "It's one of those markets that because of the coverage that's afforded, it has very little exposure to catastrophe; you can write renters policies in hurricane areas, it's wide open for that." The loss ratio is very good on renters' policies, he notes, but historically it has been one of those coverages that hasn't been mandatory: "You have mortgage companies requiring coverage, but you don't have it on renters. More property managers and landlords are starting to require renters' insurance from their tenants." Gatewood believes that the rates on renters' insurance are stable and fairly low. "It's very conceivable that a renter can get a policy for under $200 a year," he says, noting he doesn't envision rates going up much. "The loss ratio historically is very good." One of the problems, however, is commissions, he adds. "Because premiums are so small and therefore the commission to the agent is so small, it becomes a difficult product to make money on; if an agent is going to make 15% on a policy for $200, that's not a lot for handling of the policy," he explains. "The economics make it difficult for agents and brokers to push it, which is why a lot of InsurTech companies are getting into this space," says Gatewood. "A seamless, online product can reduce the amount of 'touching the policy,' if you will. If you can automate it, you can increase the margins on that product and can sell more of it." According to Banks, renters' insurance has been turned upside-down, with start-ups looking to capitalize on the business by using technology in hopes of appealing to millennial buyers. He cites examples such as bungalowinsurance.com, Lemonade and Traverse (Travelers' new product.) "We believe that automation in the renters' product will continue to improve both the transaction process as well as increase overall market participation," he adds.

Auto perils

Auto continues to be challenging, experts agree. According to the U.S. Bureau of Labor Statistics and the USC Center for Risk and Uncertainty Management, the price of auto insurance increased by nearly four times the overall pace of inflation from 2008-2017 as frequency and severity trends worsened, the economy recovered, and vehicle repair and medical costs rose. Net written premiums on private passenger auto are growing $1 million to $14 million per year, according to Hartwig. In fact, private passenger auto accounts for one-third of all premiums, the largest of all lines now and for the foreseeable future. Adverse severity trends are pressuring personal auto — and record CAT losses in 2017 will further pressure Comprehensive [coverage]," Hartwig notes. "Bodily injury severity trend is a major cost driver. With the recession, high fuel prices helped temper frequency and severity, but this trend has clearly reversed, consistent with experience from past recoveries." Severe weather is a principal cause of the spikes in both frequency and severity for Comprehensive Coverage, says Hartwig. Comprehensive losses were up 24.9% in third-quarter 2017, largely due to hurricanes Harvey and Irma. Loss ratios, meanwhile, have generally risen over the past year and private passenger auto underwriting performance is showing the strains of rising frequency and severity trends in many states — with auto combined ratio estimated at 106.5 for 2017. As profitability continues to be challenged, telematics will be implemented more aggressively across the auto insurance industry, says Banks: "This is really the future as insurance companies figure out the right pricing mechanism. Additionally, auto manufacturers will continue to improve driver-assisted features as well as limit outside communications to reduce distracted drivers." Loretta Worters is a communications expert with more than 30 years' experience in the insurance industry. To reach this contributor, Follow her on Twitter, or send email to [email protected]. See also: Top 15 homeowners' insurance carriers for 2017, as ranked by NAIC 20 homeowners' insurance companies ranked highest for customer 13 renters' insurance companies ranked highest for customer satisfaction Top 5 states for car insurance savings