Recently Verisk released its Executive Summary on Homeowner's results for 2021. The report reviews loss ratios, claim frequency and severity, catastrophic and non-catastrophic event trends, changing deductibles, and other factors affecting the market.
Loss Ratios
The loss ratios for 2021 are still developing to some extent because of late fourth quarter disasters such as the Marshall Fire in Colorado and the tornadoes in Kentucky. Loss adjustment expenses have not yet been added in. Therefore, the 2021 pure loss ratio is predicted to come to 60%, slightly lower than 2020, 2018 and 2017, but higher than 2019. The five-year average is just over 60%, while the national average for 2021 is 49% before the end of year losses are accounted for. Verisk's calculations for loss ratios are undeveloped incurred losses divided by earned premium.
Frequency and Severity
Interestingly, frequency is the lowest it's been in the past five years with the average just at 5%, and severity was the highest since 2017, with the five-year average just over $14,000. There are a number of factors for the increase in severity, with the largest being the increased cost of building materials. The supply chain issues during the pandemic caused the cost of building materials to soar, which caused a related increase in reconstruction costs. The cost of materials rose 7.2% from January 2021 to January 2022, lumber alone increased 9.8%, while drywall increased 14.8% and interior trim increased 26.6%.
Rates and Deductibles
Rates have been increasing at varying rates since 2008, with the largest increases from 2008 to 2014. Mid-year 2021 rates have increased by 1.2%. Non-wind deductibles are trending larger, with decreases in the number of $250 and $500 deductibles, and increases in the $1,000, $2,000, and $2,500 deductibles. Wind/hail and catastrophe deductibles seem to be trending away from the percentage deductibles and moving towards dollar amounts. The 2%, 2% cat, 5% cat, and $1,000 deductibles all decreased in frequency while the 1%, $1,500, $2,500 and $5,000 deductibles increased in frequency. The average premium has risen from $600 to $900.
Perils
Over the past five years, windstorms and hail have caused the most catastrophic losses, followed by all other perils and fire, then freezing and water. Windstorms alone caused 47% of the catastrophic losses between 2017 and 2021. The perils causing the most loss for non-catastrophe losses over the same time frame have been water and fire, followed by windstorm and hail. Water losses accounted for 36% of those losses.
Other Results
While theft losses during the pandemic dropped in severity, those numbers have returned to pre-pandemic levels. Cyber events increased by 7% in 2021 and phishing/vishing attacks have increased from 25,000 in 2017 to 324,000 in 2021.Phishing attacks are those where emails purporting to be from reputable companies are sent to individuals in order to induce those individuals to reveal personal information, such as passwords and credit card numbers. Vishing is the practice of making phone calls or leaving voice messages purporting to be from reputable companies in order to induce individuals to reveal personal information, such as bank details and credit card numbers.
Fifty percent of those surveyed have participated in a gig economy business or service, and another 40% have expressed interest in insurance options for gig businesses. Sixteen percent of Americans have traded, invested in, or used some form of cryptocurrency.
E-bikes are a newer form of recreational transportation and can reach speeds in excess of twenty miles per hour. They are three times more likely to be stolen, and cost $1,500 or more. Riders are more likely to suffer internal injuries than on traditional bikes in event of an accident.
Summary
Overall, premiums have on average risen by $300, deductibles are moving away from percentage deductibles and towards dollar amount, and severity of losses has increased. Part of that premium increase is being driven by the increased costs associated with building materials and reconstruction. While many claims are related to catastrophes, many are not. While countries may work to mitigate climate change, those steps will not take immediate effect and ultimately do not control the weather. Steps to prevent or mitigate damage are ways insureds can protect their property from damage by water, fire, wind and hail.
Christine G. Barlow, CPCU
Christine G. Barlow, CPCU, is Executive Editor of FC&S Expert Coverage Interpretation, a division of National Underwriter Company and ALM. Christine has over thirty years’ experience in the insurance industry, beginning as a claims adjuster then working as an underwriter and underwriting supervisor handling personal lines. Christine regularly presents and moderates webinars on a variety of topics and is an experienced presenter.