US home insurers hit by worst insurance loss in a century

The insurance industry is not coping well with climate change.

The U.S. home insurance segment posted a net loss of $15.2 billion last year, the largest loss this century and more than twice the loss in 2022, according to a report by rating agency AM Best.

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It’s no secret that extreme climate events are becoming more common. According to the federal National Centers for Environmental Information (NOAA), the United States will experience 28 weather and climate disasters in 2023, breaking the previous record of 22 in 2020 and causing $92.9 billion in damage. Southeastern states like Florida are at risk of hurricanes, while western states like California are at risk of wildfires.

It’s also no secret that many sensible people believe that living in a warm, sunny climate year-round is better than wearing layers of L.L. Bean to shovel snow from your New England driveway for three months of every year. The growth of the U.S. population confirms this, but it also highlights the stress that’s being placed on homeowners insurers:

• “The total U.S. population grew by 7.4% between 2010 and 2020, but it grew by 10.2% in the South and 9.2% in the West during that time,” said David Blades, associate director of industry research and analysis for AM Best. “Population trends show that residents are increasingly moving to regions that are more susceptible to hurricanes, severe convective storms, and even wildfires.”
• The so-called combined ratio of homeowners insurers in New England from 2013 to 2023 was 79.3, while in the South Atlantic and South regions, which include the Gulf Coast states, it was 92. The break-even point for that ratio is 100 — exceeding it means insurers are paying out more money in claims than they are taking in in premiums — and 17 states exceeded it last year.

Florexit: Many companies have given up. Florida lost more than 30 insurance providers from 2020 to 2023 due to defaults, changes in their risk appetite or leaving the state, according to the National Association of State Credit Union Providers.. Insurers also abandoned California, with large companies like State Farm, Farmers and Allstate restricting new policy issuance.