Steven N. Weisbart, Ph.D., CLU, Vice President & Chief Economist
Perspectives on Property Insurance in Connecticut Shoreline Preservation Task Force Hartford, CT...
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Transcript of Perspectives on Property Insurance in Connecticut Shoreline Preservation Task Force Hartford, CT...
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
Source: WeatherUnderground.com, accessed May 31, 2006; NOAA loss & fatality figures.
Storm Season of 1960:Brenda & Donna Visit
New England areas were hit twice in 1960.
Donna killed 50, $387 million damage along East Coast
Source: WeatherUnderground.com, accessed May 31, 2006; NOAA loss & fatality figures.
Hurricane Gloria Hit in 1985
Source: WeatherUnderground.com, accessed May 31, 2006; NOAA loss & fatality figures.
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
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