Overall loss cost in the US home insurance market fell 30% across all perils from 2010 to 2015, improving performance among property/casualty carriers but also underlining the need to revisit modeling and pricing as a path to ongoing competitiveness in a crowded market.
Those are the findings of LexisNexis’ inaugural Home Trends Report. Released Thursday, the analysis identifies trends in home insurance on a by-peril basis to provide an assessment of key market conditions.
Almost without exception, loss cost for all perils either declined or remained steady in the five-year period measured, while claims frequency also trended downward in the wake of relatively calm weather. Catastrophic losses have also remained stable and even declined, from representing 27% of claims in 2010 to 24% in 2015.
Perhaps most significant was the precipitous drop in overall wind lost cost, which plunged 53% between 2010 and 2015. This was primarily due to a decrease in event frequency of 20%, as severity remained relatively stable. Efforts to increase deductibles have also had a positive effect.
The analysis was conducted before Hurricane Matthew, however, which may trigger bigger changes in wind loss, said George Hosfield, senior director of home insurance at LexisNexis and author on the report.
“We do expect a shift because 2015 was quite a low year in terms of wind – the fact that we had no hurricanes make landfall played a huge role,” Hosfield told Insurance Business America
. “2015 is not every year, and to a certain extent, we were just lucky.”
Hail, too, declined in the five-year period. While frequency spiked by as much as 59% in the spring and summer, overall loss cost fell 26% since 2010. Like wind, this could shift somewhat as more severe hail claims have a slightly longer tail and as claims are paid, severity level is expected to rise.
Fire maintained a steady decline, as did theft and liability. In fact, the only peril to experience a loss cost increase was weather-related water, which rose 156% from 2010 to 2015 – primarily due to inclement winter weather.
The impact for all perils varied state to state, with Oregon, California, Nevada, Florida and Maine ranking as the top five states with the lowest peril and Colorado, Nebraska, Kansas, Oklahoma and Tennessee on the opposite end of the spectrum.
Hosfield hopes the report will give insurers a better idea of how to accurately model and price risk on a by-peril basis. Currently, he feels the industry needs to improve on specificity relating to non-cat pricing.
“Often, the insurer will base non-cat pricing off data that may be actuarially sound and justifiable, but is not optimal in a given geographic area,” Hosfield said. “We’re striving to help insurers base this more on statistically credible data at a gradual basis. A sub-zip code level with enough data in models to price confidently would give companies more sophisticated capabilities.”
LexisNexis hopes to put out a new Home Trends Report every year.