By: Pierre Morrisseau, CEO, OneGroup
It may go without saying, but 2024 continues to be one for the record books when it comes to severe weather events. Even as some of this year’s events have eclipsed past weather events for loss of property and life, it is the cumulative effect of so many events nationwide that is rapidly changing the insurance landscape. The collective cost of losses is resulting in a sea change in both personal and commercial insurance pricing. And as we have seen, these losses are not confined to “traditional” high-risk areas of the country.
As an insurance and risk expert, it seems appropriate and timely to share how we see natural disasters affecting insurance markets going forward. After all, insurance is, for most businesses and individuals, a major cost and an essential component of any business’s operations.
Consider the impact of just two recent storms alone: Moody’s RMS has estimated that the insured losses from Hurricane Helene may exceed $11 billion. Fitch Ratings has estimated that Hurricane Milton will far surpass Helene with insured losses of up to $50 billion. CoreLogic, an insurance industry analytics firm, indicates that there are now around seven million properties at risk of a storm surge from a Category 5 hurricane with a total property value of $11.6 trillion. The NOAA National Centers for Environmental Information (NCEI) recorded 28 separate $1 billion disasters in 2023. Yet despite the increasing occurrences of weather-related losses, Aon research found that only 31% of the roughly $380 billion in economic losses tallied in 2023 were covered by insurance. These numbers are staggering—and worrisome. It is critical that commercial property owners plan for and adapt to survive this “new normal.”
Yet all news is not bad news. For example, reinsurance—the insurance that insurance carriers purchase for themselves to help transfer risk—is likely to see rates lowered in 2025. This will be welcome news as reinsurance rates are a major driver of increased premiums from our carriers. According to analysis by Aon, global reinsurers are seeing strong profits, largely due to carriers shouldering most of the cost of recent insurance claims. While not necessarily good for the carriers themselves, a strong reinsurance market works to stabilize the insurance industry that is providing essential protections to businesses and individuals.
We expect reinsurance pricing to continue to moderate through 2024 and 2025, resulting in greater flexibility with carriers and lower end-costs to insurance buyers. We also anticipate reductions for best-performing risk categories and short-tail risks such as property, health and auto. Still, we believe that reinsurers must do a better job of sharing the cost of risk with their carriers.
To further reduce costs to business insurance buyers, part of the solution involves all entities working closely together to manage risk. First, clients and their insurance agents must collaborate to accurately identify and put in place risk management plans to present to carriers. Agents must work harder to present a positive, well-designed action plan to carrier underwriters. For their part, carriers must step out of their traditional comfort zones to allow for more innovation and modernization. Carriers, in turn, must provide reinsurers better insight into clients’ risk to remove friction costs and provide a clear picture of the original risk.
Finally, as I had mentioned in earlier articles, the entire insurance industry needs to focus heavily on curtailing social inflation. PartnerRe, a leading global reinsurer, defines social inflation as the increase in insurance losses caused by higher jury awards, more liberal treatment of claims and increased use of social media that foments an anti-insurance industry sentiment.
We are encouraged to see progress in each of these areas and are confident, barring any additional major catastrophes, that businesses and individuals will begin seeing much needed relief as we approach a new year.