The 2020 hurricane season stormed in with a record six named tropical storms by early July. But in addition to forecasts for an active storm season, coastal homeowners from Florida to Texas are facing sharp rate increases as insurers seek to rein in catastrophe losses. Carriers are tightening underwriting guidelines, limiting capacity and, in some cases, pulling out of markets. Rate increases are particularly steep in South Florida’s tri-county area, but Gulf Coast homeowners from Florida to Texas should also expect higher premiums and increased deductibles as well as fewer options for wind coverage.
After Tropical Storm Edouard turned into the earliest fifth named storm on record in early July, Colorado State University raised its 2020 hurricane forecast to 20 named storms, well above the average of a dozen. Edouard was quickly followed by Fay as the earliest sixth named storm. The University has predicted nine hurricanes this year, compared with an average just above of six.1
Hurricane activity has accelerated in recent years after a decade-long lull. The U.S. hadn’t seen a major hurricane make landfall from Wilma in 2005 until 2017 when a record three Category 4 hurricanes struck the country: Harvey drenched the Houston area with record rainfall, Irma struck the Florida Keys and Maria devastated Puerto Rico.2 Altogether, the 2017 hurricane season caused a staggering $92 billion in insured losses. Insured losses from named storms in 2018 totaled $15 billion, due mainly to Hurricane Florence, which brought massive flooding in the Carolinas, and Hurricane Michael, the most powerful storm to hit the Florida Panhandle. Category 5 Hurricane Dorian threatened Florida in 2019 but did most of its damage when it stalled over the Bahamas, devastating the islands and causing insured losses of about $4 billion.
Catastrophe losses in recent years have made insurers much more cautious. That combined with a drive at Lloyds to increase profitability has led to less capacity in storm-prone areas. It’s not just catastrophe losses, however. Attritional losses also play a large role. Increased water claims such as burst pipes have led insurers to institute or raise minimum insured values for homes or demand improvements to mitigate potential losses, particularly in Florida and coastal Texas. Modeling is playing a growing role as insurers base underwriting decisions on results for individual properties. Homes that model poorly have a harder time obtaining coverage.
This year, homeowners along the coast should expect higher rates and deductibles and stricter terms.
In South Florida, lower-to mid-value homes with loss histories or older construction are seeing rates double or triple in some cases from the expiring policies. Homes in the $100,000 to $300,000 range are the most affected, while those above $500,000 have more market availability. Many lower value homes are turning to the state-run Citizen’s Property Insurance Corp., which is heavily concentrated in South Florida.3
Deductibles have moved up to 5% in areas where 2% had been common, and in some cases as high as 10%. While mortgage lenders have been resisting higher deductibles, they are becoming more willing to accept 10%. Homeowners without mortgages are considering deductibles as high as 25% to obtain premium savings.
Capacity is shrinking as more insurers are only willing to write a specific portfolio of properties or to exclude wind coverage. Some markets have pulled out entirely from coastal areas. Carriers are looking to diversify coverage across the state, and capacity is readily available for the Tampa and central coast areas, where rates are more manageable.
Some carriers have raised or instituted minimum insured values in part to stem losses from water claims caused by plumbing problems in lower value homes. Large markets have established minimum insured value thresholds of $300,000 to $500,000 and even as high as $700,000. Those higher value homes, which are viewed as more attractive risks, still represent a significant portion of the South Florida market.
MISSISSIPPI AND LOUISIANA
Homeowners are seeing rate increases along the Mississippi and Louisiana coasts, which had been largely spared by tropical storms since being slammed in 2005 by Hurricane Katrina, which remains the costliest U.S. storm to date. Hurricane Nate struck both states in 2017, but did not have a significant impact on rates, which had trended lower during the long quiet period.
This year, domestic carriers are increasing rates, with one carrier doubling rates and another pulling out of the space altogether. Carriers are tightening guidelines and limiting capacity. Wind and hail deductibles in Mississippi are moving higher, from 2% to 3% for wind, and in some cases, 5%. Carriers are stressing risk mitigation, favoring newer construction and requiring updates to wiring, heating and plumbing for older properties. As in Florida, water losses have become a larger concern.
Rate increases on Texas coastal property range from about 5% to 25% depending on age and construction. Capacity is shrinking and carriers are becoming more selective, particularly on the barrier islands. Modeling results are driving coverage. Admitted markets are only willing to write newer homes with wind mitigation features such as wind roofs and shutters for barrier islands. Lower-priced properties are having a harder time finding coverage, as insurers are reluctant to cover stand-alone, single-family properties valued at less than $200,000.
Coastal areas where Lloyd’s has played a significant role have less capacity available. In addition, some admitted carriers or wholesalers are running out of capacity as they bump up against aggregate limits, forcing them to stop writing new policies or non-renew existing ones.
Carriers in coastal areas are increasingly seeking to exclude wind, forcing homeowners to turn to the Texas Wind Insurance Association, which provides wind and hail coverage to Gulf Coast counties. Carriers have become more cautious in Tier One areas five to 25 miles from the coast, including parts of Houston’s Harris County.
Even in coastal areas, internal water damage remains a big issue, and homes that are 15 years or older are seeing water deductibles as insurers seek to limit losses.
Homeowners’ rates are increasing from approximately 5% to 15% along the Carolina coast, with some pockets of North Carolina experiencing 10% to 25% increases. Home age and occupancy (primary, secondary or rental) continue to be key factors in underwriting decisions. Over the past 5 years, model results and increased attritional loss ratios has resulted in reduced coastal capacity. Admitted markets are only willing to write newer homes with primary or season occupancy. Modeling results are a key factor in determining pricing, newer large homes built after 2005 and valued over $500,000 for Coverage A are the most attractive to carriers and typically benefit from a lower rate.
Coastal areas where Lloyd’s has played a significant role are experiencing reduced available capacity. In addition, the limited E&S number of domestic markets writing in small pockets along the coast are beginning to reach their capacity and some have ceased writing new business. Wind deductibles throughout most of the Carolinas remain at 2%, however some barrier islands in North Carolina are 3% to 5%. As capacity continues to dwindle deductibles are anticipated to increase, driven by both market limitations and homeowners’ seeking relief from continued rate increases.
As the 2020 hurricane season storms ahead, coastal homeowners have fewer options; capacity is shrinking, and rates and deductibles are headed higher, sometimes significantly. Insurers have become far more cautious and selective when it comes to properties in storm-prone Florida and the Gulf Coast and are increasingly basing decisions on modeling results. In this kind of difficult market, experienced brokers make the difference. Contact your CRC Group personal lines producer for more information.
- Shaun Carloss is the Florida Homeowners Underwriting Manager in the CRC Orlando office and a member of the personal lines practice advisory group.
- Lindsey Doyle is a Senior Broker for Personal Lines located in the CRC Houston office and is a member of the personal lines practice group.
- Jack Pitts is a personal lines underwriter located in the CRC Jackson, MS office and is a member of the personal lines practice group.
- Renee Middleton is the Office President of the CRC Sumter, SC office and a member of the binding practice advisory committee.
- Greg Watson is the Office President of the CRC Charlotte office and a member of the personal lines practice advisory committee
- Claire Willis is the National Personal Lines Practice Leader located in the CRC Jackson, MS office.
- Seasonal Hurricane Forecasting, Colorado State University, July 7, 2020. See https://tropical.colostate.edu/Forecast/2020-07.pdf
- Facts + Statistics: Hurricanes, Insurance Information Institute. https://www.iii.org/fact-statistic/facts-statistics-hurricanes
- Corporate Analytics Business Overview, Citizen Property Insurance Corp., March 31, 2020. https://www. citizensfla.com/documents/20702/93064/20200331+Business+Overview.pdf/5bdc778e-a9bf-5701-1a00-921fe7948dfb?t=1592228259533
- Hurricane season resources, Florida Office of Insurance Regulation. https://www.floir.com/Office/HurricaneSeason/hurricaneresourcepage.aspx
- What to do before the tropical storm or hurricane, National Weather Service. https://www.weather.gov/safety/hurricane-plan
- Hurricane safety tips and resources, National Weather Service. https://www.weather.gov/safety/hurricane