Catastrophic weather events, such as wildfires, hurricanes and floods, were some of the largest drivers of losses for the home insurance industry and caused 39% of claims in 2020 – the highest percentage in the last six years. Loss cost in 2020 also increased across all perils by 6% year-over-year, following the upward trend of the last six years, which will likely continue through 2021, making it increasingly challenging for carriers to price policies profitably.
"With catastrophe claims driving losses and reinsurance costs higher, it's imperative that insurers have the most recent peril-related trend data and an analytics partner who understands how by-peril trends are changing over time," said George Hosfield, senior director of home insurance at LexisNexis Risk Solutions. "Basing underwriting and pricing decisions on accurate and up-to-date data help insurers to meet loss-ratio objectives and growth targets, as well as support a better customer experience for consumers by helping homeowners avoid escalating costs."
Loss cost and frequency for all home perils combined rose in 2020, with certain states hit harder than others. Louisiana had the highest loss cost in the nation in 2020 as a result of wind claims from a detrimental hurricane season and 2021 has already brought a number of catastrophic weather events such as Hurricane Ida. In addition, Colorado and Nebraska ranked highest in loss cost over the period from 2015 to 2020 as a result of being located in "Hail Alley" and experiencing 7-9 days of hail each year.
The Home Trends Report also analyzed the impact of COVID-19 on the U.S. home insurance market. With more people working from home, loss cost due to theft was down significantly in 2020. Noted in the report, this is perhaps a result of increased adoption of smart home security devices. In 2020, the liability peril saw a 48% severity drop year-over-year, likely due to COVID-19 restrictions and social distancing measures, which led to court closures, limited access to legal representation and increased household isolation.
Additional key findings, by peril, from the LexisNexis Home Trends Report include:
- Wind: Wind frequency, loss cost and severity all increased significantly in 2020—frequency increased by 42% this year and loss cost by 63%. 2020 marked the largest wind loss cost recorded in the last six years.
- Hail: Loss cost and severity of hail claims declined in 2020, while frequency remained steady. However, catastrophe claims made up 62% of all hail claims this year and the frequency of hail catastrophe claims increased a significant 9.9% year-over-year.
- Fire and Lightning: The 2020 wildfire season, the most active on record, led to increases beyond 2017 and 2018 levels in both loss cost and severity for insurers. The proportion of catastrophe losses also increased. California accounted for the most loss cost, severity and frequency of fire and lightning claims, with 37.2% of all catastrophe claims nationwide in 2020.
- Non-Weather-Related Water: While the six-year trend for water claims not related to weather continued to climb, 2020 did see a decrease in loss cost compared to 2019 – likely a result of people spending more time at home and perhaps increased use of smart water leak detectors.
"This year has already been very active in terms of hurricanes and other major storms," said Hosfield. "We expect 2021 and the coming years to continue this trend, which means it will be even more important for insurers to adopt new data to better assess roof risk at both new business and on their renewal book. Insurers need to be armed with the best roof condition information available to optimize coverage decisions."
To download the 2021 LexisNexis Home Trends Report, click here.