According to AM Best, US residual property insurance markets have seen a far greater influx of personal lines business that far exceeds its commercial lines counterpart, with much of the new business written in states worst affected by the growing frequency and severity of secondary peril losses.
In a new report, AM Best notes that policy count within US residual market plans nearly doubled from 2018 to 2023, with most of that growth occurring after 2020.
The agency highlights how the growth occurred as rising claims costs in several states prone to weather-related catastrophes prompted admitted market insurers’ to reconsider their risk appetites for property exposures, in some cases to specific areas within those states.
AM Best also stated that recent hurricanes Helene and Milton will likely dampen the risk appetite of insurers in the voluntary market to provide homeowners coverage in affected states such as Florida, Georgia, and North Carolina.
Moreover, a total of 33 states and the District of Columbia offer home insurance to qualifying individuals and businesses through a Fair Access to Insurance Requirements (FAIR) Plan, which were created in the 1960s in the wake of urban riots across a number of US cities.
The plans were created with a purpose of making insurance available in areas with significantly high exposure to risks over which the property owners had no control.
David Blades, associate director, AM Best, commented: “FAIR Plan policies may cost more than private insurance in the voluntary market and may offer less coverage, but they do offer policyholders insurance protection where none would exist otherwise.”
It’s worth highlighting that seven Atlantic and Gulf states: Alabama, Florida, Mississippi, New York, North Carolina, South Carolina, and Texas, have a counterpart to FAIR Plans, called Beach and Windstorm Plans, which provide residents and business owners in designated areas coverage against hurricanes and other severe storms.
AM Best noted that the underwriting performance of homeowners’ business written through these FAIR plans declined to a combined ratio of 110.9 in 2023, which increased from 104.5 in 2022.
Among individual state residual market entities, Florida’s Citizens Property Insurance Corporation remains the frontrunner by far, by both annual policy count and total premiums written, with Citizens accounting for 68.7% of direct premiums written and 52.7% of all policies provided by FAIR Plans across the US.
Lastly, AM Best stated that FAIR plans in Georgia, Louisiana, and Florida have all reported an increase in policies of more than 200%, which is likely due to the growing frequency of severe weather-related events and rising insured loss totals.
