Plus, pushback on federal insurance regulatory intrusion
The California wildfires could negatively impact homeowners insurance rates in Florida this year, Gallagher Re warns of a “new normal” for annual insured losses from catastrophes, plus the big pushback from the insurance industry on the Federal Insurance Office and its encroachment on state-based insurance regulation. It’s all in this week’s Property Insurance News.
A home destroyed in the California wildfires, January 8, 2025. Courtesy, Larry Koester, CC-BY-2.0
Wildfires Impact on Florida: As the California wildfires continue to burn, so do their ever-increasing price tag. Verisk estimates the insurance industry’s insured losses for the Palisades and Eaton fires will be between $28 billion to $35 billion. Gallagher Re has upped its initial estimates now to $20 billion to $30 billion, with others estimating up to $45 billion in insured losses. Reinsurance News reports the wildfires will burn through more than 30% of the big four reinsurers’ natural catastrophes budgets for 2025 with Munich Re admitting the fires will be a major loss for their firm.
Given that reinsurance is typically the largest component of homeowners insurance rates, both Florida Insurance Commissioner Michael Yaworsky and Citizens Property Insurance Corporation President & CEO Tim Cerio were asked by state legislators in January 14 committee meetings if the wildfires could impact the cost of reinsurance in Florida. Cerio replied, “A few days ago, we didn’t think there would be a very big impact. I’m reluctant to…it’s certainly concerning.” Yaworsky answered, “Prior, certainly to the wildfires, I would say we’re looking at a pretty positive year for Florida from the reinsurance perspective. We’ll see what the wildfires do but I’m still fairly optimistic about what the future holds.”
The Palm Beach Post quoted a university professor in the Netherlands as saying “Reinsurance markets are global. … One risk could impact the overall availability of capital and the cost of capital for other risks around the world.” In case you missed it, the Wall Street Journal lauded Florida for its insurance market reforms in its recent piece, A Tale of Two State Insurance Markets – Florida fixed its market with reforms. California didn’t. See the results.
Ground collapse of a home in the Kathleen community of Polk County from Hurricane Milton’s heavy rains
No Easing of Cat Costs: Global reinsurance broker Gallagher Re said 2024 was an especially bad year for natural catastrophes, with global insured losses totaling $154 billion, a 27% increase over the 10-year average. The direct economic cost was $417 billion, with public and private insurance entities covering about 37% of that, with the U.S. accounting for $117 billion in insured losses. The Gallagher Re Natural Catastrophe and Climate Report 2024 noted as well that hurricanes Helene and Milton each cost insurance companies $20 billion. It suggests the “new normal” for annual insured losses is approaching $150 billion.
Federal Insurance Office Report: The U.S. Treasury’s Federal Insurance Office (FIO) has released its report Analyses of U.S. Homeowners Insurance Markets, 2018-2022: Climate-Related Risks and Other Factors. It used states’ data shared by the National Association of Insurance Commissioners. Although the report acknowledged multiple factors leading to “homeowners insurance becoming more costly and harder to procure for millions of Americans,” including inflation, reinsurance, regulatory constraints, population shifts, and legal abuse, it focused the blame on climate-related events. The American Property Casualty Insurance Association (APCIA) in a press release said the FIO report was “an incomplete and misleading explanation about the affordability and availability of insurance,” and the reason “the NAIC last November terminated its data-sharing with Treasury on the climate change report.” The sentiment was echoed by other industry groups and follows a similar report issued recently by the U.S. Senate Budget Committee. During recent hearings, Senator John Kennedy (R-LA) remarked “I hate to see the federal government get in the insurance business, but it looks like we’re going to have to.”
A few days later, APCIA released a report titled Price Regulation and its Effects on Insurance Markets: Analysis and Case Studies. In a press release, the group noted that “Insurance markets function best when allowed to operate competitively, free from excessive price regulation,” and that “Regulatory rate suppression might be a sugar high in the short term, but in the long term it devastates the markets and the availability of insurance for consumers.” APCIA and other industry groups are now preparing a full-court press to defend our state-based insurance regulatory system from federal intrusion as a result of the FIO report and Senator Kennedy’s comment.
LMA Newsletter of 1-27-25
