Perspectives on Property Insurance in Connecticut

Perspectives onProperty Insurance

in ConnecticutShoreline Preservation Task Force

Hartford, CTJune 6, 2012

Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief EconomistInsurance Information Institute 110 William Street New York, NY 10038Office: 212.346.5540 Cell: (917) 494-5945 [email protected] www.iii.org

Hurricane History in Conecticut

2

Connecticut Gets Its Shareof Hurricane Hits

Track of “Long Island Express”Storm of 1938

Source: WeatherUnderground.com, accessed February 4, 2006.

“Great New England Hurricane” of 1938 a.k.a. “Long Island Express” caused severe damage through much of the Northeast600+ Deaths$308 million

Storm Season of 1944:A Busy one for the Northeast

Three storms affected New England in 1944, including the “Great Atlantic Hurricane”46 deaths$100 million damage109mph gusts in Hartford

Source: WeatherUnderground.com, accessed May 31, 2006; NOAA loss & fatality figures.

Storm Season of 1954:The Northeast Hit Again

New England areas hit by Carol & Edna two weeks apartCarol: 8-10 ft. floodwaters in ProvidenceEdna hits Cape CodCombined: 80 deaths, $501 million losses


Storm Season of 1960:Brenda & Donna Visit

New England areas were hit twice in 1960.

Donna killed 50, $387 million damage along East Coast


Hurricane Gloria Hit in 1985


Gloria 9/27/858 deaths

$900 million damage

8

2011: Irene

Irene: 8/27/2011$4.3 billion damage

Source: AIR Worldwide

Insured Losses: $110B Economic Losses: $200B+

$70

$30

$5 $4 $1$0

$20

$40

$60

$80

NY NJ PA CT Other

Nightmare Scenario: InsuredProperty Losses for a CAT 3/4 Storm

Total Insured Property Losses =

$110B, nearly 3 times that of

Hurricane Katrina

Distribution of Insured Property Losses by State, ($ Billions)

Increasing Frequencyand Cost

of Severe Weather

10

Nationally, Number of Federal Disaster Declarations, 1953-2012*

13 1

7 18

16

16

7 71

21

22

22

02

52

51

11

11

92

91

71

74

84

64

63

83

02

2 25

42

23

15

24

21

34

27 28

23

11

31

38

45

32 3

63

27

54

46

55

04

54

5 49

56

69

48 5

26

37

55

98

19

91

3

43

0

10

20

30

40

50

60

70

80

90

100

53

55

57

59

61

63

65

67

69

71

73

75

77

79

81

83

85

87

89

91

93

95

97

99

01

03

05

07

09

11

*Through May 29, 2012. Sources: Federal Emergency Management Administration at http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.

There have been 2,062* federal disaster declarations since 1953.Note that 2005 was a relatively low year for number of disaster

declarations in the 1996-2010 period,but that year included Hurricanes Katrina, Rita, and Wilma.

The number of federal disaster declarations set

a new record in 2011.

From 1953-71, the average number of declarations

per year was 16.5.

The average number from 1996-

2009 was 56.8.

The average number from

1972-1995 was 31.7.

Federal Disaster Declarationsin Connecticut, 1953-2012*

01 1

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 01

0 01

01 1

0 0 01

0

10 0 0

10 0

10 0 0 0 0

10

10 0

13

0

1

0

1

2

3

4

53

55

57

59

61

63

65

67

69

71

73

75

77

79

81

83

85

87

89

91

93

95

97

99

01

03

05

07

09

11

*Through May 29, 2012. Sources: Federal Emergency Management Administration at http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.

From 1956-78, there were no

disaster declarations in Connecticut.

Is this the start of a new trend?

From 1979-2010 there was a

federal disaster declaration for

Connecticut about once every

three years.Hurricanes

Number of Federal Disaster Declarations

Two of the three disaster declarations in 2011 were for snowstorms.

Hurricane Bob

Hurricane Gloria

13

10 of the 14 Costliest Insured-Loss Disasters in U.S. History Occurred Since 2004

Insured Losses, 2011 Dollars, $ Billions

*Losses will actually be broken down into several “events” as determined by PCS. Includes losses for the period April 1 – June 30.Sources: PCS; Insurance Information Institute inflation adjustments.

$9.0$11.9 $13.1

$19.1$21.3

$24.0 $25.0

$47.6

$8.5$7.7$6.5$5.5$4.4$4.3

$0

$10

$20

$30

$40

$50

Irene(2011)

Jeanne(2004)

Frances(2004)

Rita (2005)

Hugo (1989)

Ivan (2004)

Charley(2004)

Wilma(2005)

Ike (2008)

Northridge(1994)

SpringTornadoes& Storms*

(2011)

9/11Attack(2001)

Andrew(1992)

Katrina(2005)

Taken as a single event, the Spring 2011 tornado/ storm season produced the 4th largest losses in US insurance history

Irene was the 11th most expensive hurricane in US

history

14

$12.

3

$10.

7

$3.7

$14.

0

$11.

3

$6.0

$33.

9

$7.4 $1

5.9

$32.

9

$71.

7

$10.

3

$7.3

$28.

5

$11.

2

$14.

1

$32.

3

$13.

7

$4.7 $7

.8

$36.

9

$8.6

$25.

8

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*

US Insured Catastrophe Losses Now Average Over Twice the Prior Amount

*PCS figure as of April 6, 2012.Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.Sources: Property Claims Service/ISO; Munich Re; Insurance Information Institute.

The “new normal” for CAT losses: 2002—the best CAT year in the past 11—was worse than 5 of the 11 years from 1990-2000.

CAT Losses Surged on Near- Record Tornado

Activity

$ Billions, 2011 Dollars

2000s: A Decade of Disaster

2001-2010: $202B (up 122%)

1991-2000: $91B

15

What’s So Different About Homeowners (and Other Property) Insurance?

It’s possible to have many very large claims at the same time Need more liquidity (to pay claims quickly) than for other types of

insurance Often need adjuster to inspect the loss on-site; might need to bring

adjusters from far away (cost of claim adjustment is higher)

Have to be more careful about insuring too many properties in the same general area

Most claims paid within a few months Little help from investments in providing funds for claims

It’s possible to have no large claims in some years When that happens, in retrospect it will appear that the insurer had

excess capital and staff devoted to this line

16

Homeowners Insurancein Connecticut

10.0%

5.8%

11.1%

9.5%

-8.1%

4.5%

-18.7%

11.1%

13.8%

7.4%

5.4% 7.8% 11.1% 15.5% 19.6%

14.0%

15.5%

18.0%

17.9%

16.5%

10.8%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Homeowners Insurers in Connecticut:Yearly Operating Profit*, 1990-2010

*Operating Profit is defined as [Losses plus Expenses minus Investment Gain Attributable to the Line] as a Percent of Direct Earned Premiums.Sources: NAIC Report on Profitability by Line by State, various years; SNL Financial; I.I.I.

Connecticut’s homeowners insurance market produces modestprofits in most years and significant losses in others

Much of this was “wiped out” by the catastrophic claims of 2011.

What’s left will be meager returns.

A Comparative “Affordability” Measurefor Connecticut HO Insurance, 2009

Rank (among the 50 states)

Average Premium $1,016 10th (higher than most)

Average Household Income

$92,807 1st

(highest)

Premium/Income Ratio 1.09% 34th (more affordable than most)

Source: “The H-U-R-T Index (Homeowners Underwriting Resistance Test)” Property Insurance Report, February 13, 2012, published by Risk Information, Inc., Dana Point CA, using data from the NAIC’s report, released January 2012, on 2009 Dwelling Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/Cooperative Unit Owners Insurance.

Although the average Homeowners premium in Connecticut in 2009 was higher than that in most states, when computed as a percent of average household income, the premium was a smaller percentage

than in all but 16 other states.

2008-09 Connecticut HO-3 Insurance Average Premium Growth, by Property Insurance Amount

Insurance Amount

$150,000 to

$174,999

$175,000 to

$199,999

$200,000 to

$299,999

$300,000 to

$399,999

$400,000 to

$499,999

$500,000 and over

Percent of HO-3 homes

5.5% 8.8% 39.6% 22.0% 10.0% 10.4%

2008 Avg Premium

$617 $671 $812 $1,048 $1,304 $2,039

2009 Avg Premium

$625 $676 $817 $1,051 $1,307 $2,054

2008-09Percent Change in Avg Premium

1.3% 0.7% 0.6% 0.3% 0.2% 0.7%

Sources: The NAIC’s report, released January 2012, on 2009 Dwelling Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/Cooperative Unit Owners Insurance, and the report for 2008 released a year earlier; I.I.I. calculations

The latest NAIC data of this type is for 2009. The table above covers 76% of homes that are covered by HO-3, the most common policy type.

20

HO & CMP Premiums: 12-Month Percent Change, Monthly, June 1999– April 2012

Sources: U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index, Series IDs: PCU9241269241262 and : PCU9241269241265; National Bureau of Economic Research (recession dates); Insurance Information Institute.

-2%

0%

2%

4%

6%

8%

10%

12%

14%

'99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11

Recession HO CMP

Hard market

CMP premiums declined for over two years

Latest HO premium

growth rate: 3.5%

21

Residential Construction Price Index, Monthly, 2001–2012*

Note: Recessions indicated by gray shaded columns. *Data for Jan 2012-Apr 2012 are preliminarySources: U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index, Series ID: PCUBRES--BRESNational Bureau of Economic Research (recession dates); Insurance Information Institute.

140

150

160

170

180

190

200

210

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

Annual Construction

Price Changes

2002: -0.4%2003: +2.0%2004: +6.5%2005: +6.1%2006: +6.4%2007: +2.4%2008: +5.5%2009: -0.9%2010: +3.3%2011: +5.9%

Index (1986=100)

The cost of building a home rose by 45% from the start of 2001 through the end of 2011. But price changes didn’t occur evenly, and didn’t match change in the

Consumer Price Index.

This measures only the cost of materials for construction, not

labor.

Flood Insurance

22

“Wind vs. Water” Isn’t an Issuefor Property Owners with

both Flood and Property Insurance

41,094 NFIP Policies in Forcein CT at end of 3rd Quarter 2011

23

Number of Flood Insurance Policies In Force in Connecticut, Feb 2012

2,748

2,655

2,173

1,823

1,709

1,570

1,325

1,322

1,271

1,070

1,022

831

2,762

0 500 1,000 1,500 2,000 2,500 3,000

Middletown

Stamford

Fairfield

Norwalk

Stratford

Bridgeport

Greenwich

Westport

Old Saybrook

East Haven

West Haven

Stonington (town)

Groton*

*Includes City of Groton, Town of Groton, and Groton Long Point AssociationSource: http://bsa.nfipstat.com/reports/1011.htm#CTT.

25

Private Flood Insuranceis Available in CT

At Least 22 Brokers are Licensed to Sell Private Insurers’ “Excess” Flood Insurance in CTSome private insurers also provide “first dollar”

flood insurance, particularly for areas that are not eligible for NFIP policies

Some of the largest HO insurers, and some smaller but still substantial insurers, sell excess flood insurance

www.iii.org

Thank you for your timeand your attention!

Insurance Information Institute Online:

Perspectives on Property Insurance in Connecticut

Documents

Transcript of Perspectives on Property Insurance in Connecticut