Historic hurricane season squeezes insurers

It would be difficult for anyone in the U.S., let alone just those in the insurance industry, to have missed just how active the 2020 hurricane season has been. With dozens of storms forming during this months-long period, it seemed there was always one storm threatening to make landfall while another began to form, creating a punishing conga line of weather hazards for coastal regions and heavy losses for insurers.

Certainly, most insurers came into the year already dealing with challenges in their property and casualty portfolios, and the record-setting hurricane season has only made things more difficult. The Puget Sound Business Journal notes that even before storms started making landfall, property insurance premiums were on the rise from 2019 to 2020, in some cases by more than 60%, depending on a number of conditions.

Throughout the 2010s, there were some 396 massive weather events or natural disasters that caused at least $25 million each in insured losses, totaling $329.1 billion. That would be a lot for any decade, but it's made worse by the fact that about 160 of those events and roughly $181 billion of those losses came within the last three years of the survey period.

2020's hurricane activity has belted the U.S. — and the P&C industry.

2020 becomes a year to remember
All that, of course, comes before the busiest hurricane season in recorded history, with Hurricane Iota — which made landfall in Nicaragua in mid-November — becoming the 29th named storm since May, according to CNBC. Because of this, and a number of other lingering issues, the National Flood Insurance Program is currently about $20 billion in debt, and that's before fully accounting for the problems that arose late in this hurricane season.

While the last few years haven't seen storms wreak the kind of havoc that Hurricane Katrina or Superstorm Sandy did, experts say the large number of smaller storms can create similar problems. Roy Wright, CEO of the Insurance Institute for Business & Home Safety, told CNBC that these days, “It's mid-intensity storms that park for long durations that are being really the facilitators of the most catastrophic losses.”

While the NFIP is working on a new flood risk rating map to better meet its pricing needs (and potentially start making up some of that debt), private insurers are also starting to look at new ways to deal with flood risk and meet the needs of people who live in high-risk areas.

What comes next?
It should come as little surprise that insurers aren't going to bear those kinds of financial burdens on their own, especially as more storms rack up billions of dollars worth of damage each. For instance, when Hurricane Zeta — the fifth hurricane to hit Louisiana in 2020 — made landfall, it caused damage estimated to be as much as $4 billion. As a result, homeowners in the Pelican State will likely see their home insurance premiums rise by up to 10% on average, according to the New Orleans Times-Picayune. Those would be some of the largest hikes seen since Katrina made landfall and devastated the region in 2005; the year after, the average premium increase was 12%.

Moreover, that kind of uptick would come on top of what are already some of the highest home insurance costs in the country, with many residents paying hundreds of dollars per month in premiums, the report said. However, many insurers will also give residents a discount if they upgrade certain aspects of their properties to insulate them from risk in some way. Moreover, homeowners would then have to weigh the cost of those upgrades against what they might have to pay in higher premiums, which can be problematic if they are already cash-strapped to begin with.

What's needed?
In addition to the obvious need for financial relief from P&C insurers, companies also have to put a far greater emphasis on communication with policyholders, according to Property Casualty 360. That kind of effort should have been happening long before hurricanes and tropical storms actually crashed into U.S. shorelines, but all subsequent communications need to be far more informative and, perhaps more crucially, frequent.

People simply do not want to be in the dark about whatever is going on with their claims and other concerns stemming from a severe storm; outreach on this front can take on a number of forms. These can range from in-person visits to text messages sent automatically as a claim works its way through the standard processes. That way, even at a time when people are dealing with potentially devastating aftereffects from a storm, they can be confident their insurer has their back and is setting them up for a strong recovery.

The more insurers can do to simplify these processes and make them more user-friendly for policyholders, the better off all involved will be when it comes to enjoying a long and fruitful relationship.