Tag Archives: homeowners insurance

CAT models could help insurers provide policies to more Californians

As a new wildfire season in California is ablaze, answers to questions about insurers’ pricing, underwriting, and exposure management functions resulting from the 2017 and 2018 seasons are still taking shape. According to Milliman estimates, the 2017 wildfire season alone wiped out just over 10 years of underwriting profits for California homeowners insurers. Moreover, the combined 2017 and 2018 wildfire seasons wiped out about twice the combined underwriting profits for the past 26 years, leaving the insurance industry with an aggregate underwriting loss of over $10 billion for the California homeowners line of business since 1991.

A historically profitable line of business has recently become an unprofitable line exposed to a severe peril that is neither easily measured nor fully understood. As a result, wildfire risk has become a key focus of Californians, and their property insurers.

Catastrophe simulation models, or “CAT models,” have been developed for a variety of catastrophic perils, such as hurricanes, floods, winter storms, earthquakes, and wildfires, to provide insurers with scientific techniques to quantify and assess their exposure to catastrophic risk. Recognizing the growing importance of this peril, a number of firms have been working to apply the latest techniques in catastrophe modeling to wildfires.

In their article “Wildfire catastrophe models could spark the changes California needs,” Milliman’s Eric Xu, Cody Webb, and David D. Evans explain how enhanced quantification and understanding of wildfire risk represents one of the most important challenges for property insurers writing business in the Western United States, and how innovations in the field of catastrophe modeling may assist them with this task. 

From nothing to something—the U.S. private flood insurance market thrives

Flood was a peril once thought to be uninsurable by the private insurance market. Today, the sector is poised to grow rapidly. Milliman consultants Nancy Watkins and Dave Evans are optimistic that private insurers will significantly close the U.S. flood “protection gap” in a few years by routinely offering flood coverage alongside most homeowners policies. In a recent Carrier Management article they authored, the consultants discussed trends in the private flood market leading to this prediction, and outlined several obstacles the market will need to overcome along the way.

To learn more about what flood insurance for U.S. homeowners could look like in a couple of decades, listen to the Critical Point episode entitled “The future of flood insurance.”

Critical Point focuses on the future of flood insurance

If you’ve watched the news recently, it will come as no surprise that flooding has become a major issue for communities across the United States. In this episode of Critical Point, Milliman consultants Nancy Watkins and John Rollins discuss the history and future of flood insurance. They also explore what flood coverage for homeowners could look like a few decades from now.

To listen to the entire podcast, click here.

How will climate gentrification affect homeowners and the communities they live in?

The visibility of climate change’s impact on property hazard is increasingly leading individuals and their chosen leaders to ask: how might an increase in hazard affect the desirability of living in various communities and how do we manage the socioeconomic effects? Recent stories have highlighted the concerns of “climate gentrification,” or potential migration from low-lying but relatively well-off areas to areas of higher elevation but sometimes higher poverty.

Milliman has worked with Jupiter Intelligence, a climate risk analytics provider of forward-looking and probabilistic hazard data for future conditions, to develop a framework for analysis that may spark insight for community leaders in the public and private sectors who are charged with managing climate change and planning for a resilient future. This paper by Molly Barth and John Rollins investigates insurance risk, consumer costs, and resilience incentives under the stress of a changing climate in Broward and Miami-Dade counties.

How many Californian homeowners lack earthquake coverage? (infographic)

When a 6.4 moment magnitude (Mw) earthquake struck Ridgecrest, California, in early July, followed closely by a 7.1 Mw event, many in the state worried it was the “Big One.” But while it was the most powerful California earthquake since 1999, and only the fourth exceeding 7 Mw in the past 40 years in California, Ridgecrest occurred in sparsely populated Kern County and won’t rival the state’s most destructive earthquakes.

As Milliman actuaries David Evans, Eric Xu, and Cody Webb write in their recent article, while not the “Big One,” the Ridgecrest event may prompt Californians to consider their exposure to this peril. Coverage for earthquakes isn’t provided by homeowners policies in California and insurance participation across the state is low, especially in some of the state’s riskiest areas—as this infographic depicts.

What do property insurers entering the private flood market need to know?

The U.S. private flood insurance industry is an emerging market with the potential for risks and rewards, none as important as helping Americans become more resilient against devastating floods. Several converging developments have transformed the formerly niche offering into a potential sustainable, large-scale business. These developments include rapid advances in technology, an abundance of risk capital, a break in the longstanding legislative status quo, and the human and economic impact of recent disasters on consumer awareness of the increasing flood hazard.

Establishing a greater private flood insurance market should benefit insurance consumers, helping to close the protection gap and improve the resilience of households and economies against future flood-related catastrophes. But as with most great undertakings, hard work and foresight are necessary for success. In this paper, Milliman consultant John Rollins explores some questions and challenges for aspiring U.S. private flood insurers.