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Companies Pull Back from Property and Auto Insurance Markets

This week, Nationwide announced it is pausing writing business in certain lines of insurance, joining the list of insurers who have withdrawn from markets.
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companies pull back from property and auto insurance markets

On Monday, Nationwide notified independent agents and brokers via email that the company is pausing writing business in certain lines of insurance in order to remain “a strong, stable partner that protects customers for the long-term." In the past month, State Farm, All State, and Farmers all confirmed they are also making—or have already made—similar changes.

“Strong headwinds brought on by the economic environment, catastrophic weather events and the impacts of inflation on repair and replacement costs, along with severity and frequency of driving trends, continue to impact the entire insurance industry," the Nationwide email said.

Effective June 26, Nationwide will begin nonrenewing monoline auto policies, starting with late-September effective dates. However, there will be state nuances based on legal statutes or regulations involving monoline business. Also, effective June 30, Nationwide will pause new writings for habitational and lessor's risk countrywide.

“These changes are limited to small commercial only, and do not impact middle market, farm or agribusiness," the email said.

Nationwide also told agents that, effective yesterday, June 14, “pre-quote documentation" will be required on personal auto and homeowners in 26 states and for certain properties in 21 states. For further details, Nationwide encouraged agents to visit the Agent Center.

Rapid increases in inflation over the last few years have spiked auto and homeowners insurance losses and combined ratios. Simultaneously, insurance claims inflation has been rising even faster than the underlying consumer price index, far outpacing increases in premiums.

Moreover, 2022 was the eighth year in a row the U.S. suffered at least 10 catastrophes causing over $1 billion dollars in losses, according to the American Property Casualty Insurance Association (APCIA). Meanwhile, the price of single-family residential home construction materials has climbed 33.9% since the start of the pandemic, while trade services are up 27%, APCIA reported, calling this the “hardest market in a generation."

Nationwide's announcement is only the latest in a string of high-profile carrier exits from personal and commercial lines property & casualty insurance. Most companies referred to inflation, construction costs and catastrophe losses as the reason behind the decision, as well as communicating that the measures were necessary for the company's financial standing.

Effective May 28, State Farm announced that it will no longer be accepting new applications for homeowners or commercial property insurance in California. "State Farm General Insurance Company made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market," the State Farm statement said.

In 2022, State Farm was the largest homeowners insurer in the U.S. with a market share of 18.35% and more than $24 billion in direct premiums written, according to data from the National Association of Insurance Commissioners. However, overall payouts on claims to California homeowners more than doubled in 2019 through 2022, while premiums increased by only around a third, according to the APCIA.

In March, State Farm posted a $13.2 billion underwriting loss for its 2022 property-casualty business, which was the largest underwriting loss in its 100-year history. The loss related primarily to State Farm's auto insurance business, which is indicative of the auto market as companies as take heavy losses due to inflation, labor shortages, technology adoption and supply-chain disruption, as well as societal trends, such as distracted driving and a TikTok phenomenon targeting Kia and Hyundai models.

Allstate recently told the San Francisco Chronicle that it exited the California property market last year. “The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes and higher reinsurance premiums," according to an Allstate spokesperson.

AIG left the standard California market in January 2022, opting to only offer surplus lines coverage, but recently also limited homeowners insurance coverage to high-net worth clients in approximately 200 high-risk zip codes, including New York, Delaware, Florida, Colorado, Montana, Idaho and Wyoming, which points to a trend that carrier exits are not limited to California and wildfire-exposed areas.

For example, Farmers has ceased offering homeowners policies in Florida, citing historically high catastrophe costs and escalating reconstruction expenses. “In Florida especially, we've seen a mix of various unique challenges, and catastrophe costs are at historically high levels," said a memo released to the press. “Housing prices are increasing, and inventory supply and demand, lumber prices and costs of labor are contributing to the increase. These issues also are increasing the costs of claims, which in turn drives down profitability."

Last year, Florida placed six insurers into receivership because of insolvencies and in February, St. Petersburg-based United Property & Casualty, which wrote about 135,000 policies in Florida, was forced into insolvency, which was largely caused by losses after Hurricane Ian.

Will Jones is IA editor-in-chief.

Thursday, July 20, 2023
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