An Aug. 21, 2020, photo shows blue tarpaulin covering a damaged roof in North Cedar Rapids after the Aug. 10 derecho. More than 1,000 homes in Cedar Rapids were deemed “unsafe for occupancy” after the storm. In the United States, home insurance premiums are rising due to damage from storms and wildfires, and some companies are terminating insurance policies due to increased risks from climate change. (The Gazette) A truck crushed by a fallen tree is seen next to Carmen Baker’s mobile home at Edgewood Forest Trailer Home Park in Cedar Rapids on August 20, 2020. Baker’s home was also severely damaged in the Aug. 10 storm. (Official Gazette)
Micah Woolstenhulme hadn’t seen much Midwest weather before moving to Cedar Rapids. Four months after he arrived, the August 2020 derecho occurred.
Mika Woolstenhulme, UFG
“It was a whole new experience,” Woolstenhulme said. “We’ve never experienced anything like that before. We saw what a storm of that magnitude was like.”
Woolstenhulme, who grew up on the East Coast, had just accepted a job as chief risk and reinsurance officer at Cedar Rapids-based UFG Insurance. The massive and powerful storms that hit five states dramatically demonstrated the unpredictability of climate change.
He said “the entire industry is investing heavily in (computer) modeling” to assess the risks posed by more frequent and violent weather events.
Thomas Berry Stölzl, UI
“The main risk is the claims that come with it,” said Thomas Berry Stolzl, an associate professor of finance at the University of Iowa’s Tippy College of Business. “It’s on the rise and it’s not going away.”
Based on reports from state regulators, Berrystolzl recently found that insurance companies are more likely to respond to climate-related weather threats when a disaster occurs in the state where they are headquartered.
At UFG, which writes business and commercial real estate insurance policies in 32 states, Woolstenhulme and his staff specialize in risk management and reinsurance (essentially transferring risk to another company to reduce the likelihood of The company must ensure that it has reserves to pay insurance claims (through insurance provided by insurance companies). For large payments.
Phenomena such as hurricanes and earthquakes are relatively easy to model, but convective storms (think of traditional Midwestern summer thunderstorms) are becoming more frequent and occurring in places where they never occurred before. I am.
“Hail, tornadoes, straight-line winds are probably the most painful thing for this industry because it has been underpriced for so long,” Woolstenhulme said. “These are typically not covered by standard reinsurance, which is largely why interest rates in the real estate industry are rising.”
influence
The disruption to the insurance industry caused by climate change, once concentrated in high-risk states such as Florida, California, and Louisiana, prone to devastating hurricanes and wildfires, is now spreading to the Midwest. are.
A May report from Moody’s Ratings said more than 90% of the country saw double-digit interest rate increases from 2019 to 2024 as the industry faces rising costs. In some states, interest rates have jumped up to 60% over five years. And in 2023 alone, interest rates rose by as much as 30 percent in some states.
The report notes that from 2014 to 2023, insurance companies paid out more claims than they earned in premiums.
U.S. property and casualty insurance suffered an estimated $21 billion in underwriting losses in 2023. Underwriting losses totaled $24.8 billion in 2022, according to an analysis by data analysis and risk assessment firm Verisk and the Property Casualty Insurance Association of America.
With the damage from Hurricane Helen reaching far inland, leaving a path of destruction from Florida to North Carolina in September, and with superstorm Hurricane Milton heading toward Florida this month, we are looking forward to 2024. This year’s numbers are likely to be even higher.
U.S. property and casualty insurance suffered an estimated $21 billion in underwriting losses in 2023. Underwriting losses totaled $24.8 billion in 2022, according to an analysis by data analysis and risk assessment firm Verisk and the Property Casualty Insurance Association of America.
According to the association, 2022 marks the eighth year in a row that the United States was hit by at least 10 major disasters, resulting in losses exceeding $1 billion. Natural catastrophe losses in the United States from 2020 to 2022 exceeded $275 billion in 2022 dollars, the highest three-year total ever for U.S. insurance companies.
According to the association, 2022 marks the eighth year in a row that the United States was hit by at least 10 major disasters, resulting in losses exceeding $1 billion. Natural catastrophe losses in the United States from 2020 to 2022 exceeded $275 billion in 2022 dollars, the highest three-year total ever for U.S. insurance companies.
Iowa’s homeowners insurance market has been profitable for years, but suffered losses from severe storms from 2020 to 2022, said Iowa Insurance Commissioner Doug Omen.
“We’ve been through a pretty tough year, and 2021 and 2022 have been really tough years as well,” he said.
In 2020 alone, the year of the derecho, insurance companies in the state totaled more than $1 billion in losses, according to the Iowa Department of Insurance.
At least four companies – IMT Insurance, Secura, Serina and Beijing Insurance – have lost customers in Iowa, impacting tens of thousands of policyholders in the state.
“There is no free lunch”
Martin Grace, UI Professor
UI finance professor Martin Grace, who studies how insurance companies deal with climate change, said insurers could adjust their underwriting standards or investigate technologies and practices to mitigate weather damage. , said it was addressing climate risks by terminating some insurance policies altogether.
“We used to insure these risks, but now we don’t. But maybe we can come out and offer advice on how to make your property more resilient. “Maybe then they’ll give you insurance,” Grace said. corporate approach. “The key is risk avoidance and risk mitigation.”
“Someone at the company is researching and recommending risk mitigation measures,” Woolstenhulme said. “We and other companies are certainly stepping up our efforts in that area.”
Frequent and widespread occurrences of dangerous weather inevitably lead to higher property and casualty insurance premiums.
“The costs of tornadoes, hail and straight-line winds are being passed on to policyholders themselves,” Woolstenhulme said. “That’s why we’re seeing interest rates rise. The reinsurance market has decided that this is a cost that should be factored into the original policy.”
Residential property coverage can be complicated if the homeowner lives in a disaster-prone region, such as the Gulf Coast of Mexico or a mountainous area with a risk of wildfires. According to a LexisNexis trends report, the cost of home insurance increased by 21% between 2015 and 2021. Insurance premiums in the hurricane-prone state of Florida are more than 3.5 times the national average.
“There’s no free lunch here,” Grace said. “People have to pay a price for the risk. There’s a price to pay when you live in a dangerous area.”
The River of Life Church in Cedar Rapids sustained significant damage in the derecho, as shown in this August 11, 2020 aerial photo. (Stephen Murray/Freelance)
“It doesn’t look good”
UFG sold its residential real estate business to Nationwide in 2020, and virtually all flood reporting is now produced by the federal government.
Insurers often try to offset this by geographically diversifying their markets and writing policies in less risky areas. But such low-risk areas are few and far between, and state regulators may be taking a dim view of the cost burden, Grace said.
“That makes a lot of sense, but regulators in Kansas say, ‘You’re doing business in Florida.’ We don’t want that kind of (risk) to creep into the price of insurance here. “I don’t want that,” he said.
Berrystolzl does not believe this situation threatens the health of the insurance industry as a whole. He noted that while banks may be forced to write down property values on 30-year mortgages, insurance companies have the flexibility to negotiate insurance terms each year.
“The contract period is much shorter,” he said. “I don’t think insurance companies are going to go out of business. They can be more dynamic in contract negotiations.”
Meanwhile, the climatologists and actuaries of UFG and its competitors will seek to adapt to a changing climate and its unpredictable weather.
“Modeling is not static; the climate continues to change,” Woolstenhulme said. “If you look at weather patterns, it’s very clear that losses are increasing. Companies are trying to predict what their risks will be based not only on their current risks, but also on how their risks have evolved over the past few years. It’s starting to look bad.”
The Gazette’s Tom Barton contributed to this article.
Aug. 12, 2020 Iowa Department of Transportation workers remove wood debris from around Keystone’s Archer Daniels Midland plant, where a grain bin was crushed in the Aug. 10 storm. (Jim Slosialek/The Gazette) A tree fell on top of a house from Hurricane Helen on Oct. 4 in Asheville, North Carolina (Jeff Amy/Associated News) Iowa Task Force One, an urban search and rescue unit Eric Vandewater, a member of the team, climbs up. Windows of an evacuated home in Cedar Rapids, June 15, 2008. Emergency services and public works crews began inspecting homes in the flood zone to see if it was safe for residents to return. (AP Photo/Seth Wenig) Tom Melsch (left) and Rick Hobson look on as floodwaters flow down J Street in southwest Cedar Rapids on June 13, 2008. Floodwaters covered 10 square miles of the city center. Approximately 6,000 homes were flooded. (Official Gazette)
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