For property and casualty (P&C) insurers, 2022 was the worst year in more than a decade, according to actuarial data from the Insurance Information Institute, a New York-based industry group, and Seattle-based research firm Milliman.

With devastating hurricanes in Florida, drought and wildfires in the West, tornadoes and flooding across the Midwest and South, and other environmental disasters, Mother Nature caused some $165 billion worth of damage in the U.S. last year, as measured by the National Centers for Environmental Information. That made it tied for the third costliest year on record.

Hurricane Ian alone, which made landfall in Florida at the end of September, was “one of the most expensive weather-related events in U.S. history,” said Michael Barry, chief communications officer at the Insurance Information Institute.

With January’s massive rains in California, the onslaught shows no signs of letting up.

Hard To Find Coverage
For property owners, especially in the most devastated areas, it’s become increasingly hard to secure adequate coverage for such disasters.

“My own personal homeowners insurance went up over 60%,” said Steven Podnos, a certified financial planner at Wealth Care in Cocoa Beach, Fla., an area hard hit by Ian. “We bid out to 12 companies and only four offered a policy at all. Those of us who live in areas prone to hurricanes, earthquakes, and other natural disasters will just be paying very high premiums in the future.”

For many, it’s a matter of trade-offs: Pay more or get less.

“By strengthening their homes and purchasing policies with higher deductibles, homeowners in these states and elsewhere can reduce what they pay for insurance coverage,” suggested Barry.

Still, there are no easy solutions.

Extremely Difficult
“It’s going to be extremely difficult for homeowners to find affordable coverage, [especially] if they have older homes with less than ideal mitigation in cat-prone areas,” said Adam Pauska, a principal at AXG Advisors, a high-end insurance brokerage in Dallas, referring to catastrophe-ravaged areas and disaster-proofing renovations such as hurricane-rated windows and fire-resistant building materials.

But of course, property upgrades and repairs cost money. Supply-chain snarls and inflation have raised the price of building materials, and rising interest rates have made it more expensive to borrow money for repairs or renovations. Once upgrades are made, the value of the property increases—as does the amount of insurance coverage necessary to cover future damage.

“As a result, most property insurers are raising the limits on the property to meet those increases,” said Pauska. “We’re seeing 20% to 30% jumps [in premiums] in the marketplace regularly as insurers fight to make sure they’re collecting adequate premium on the new replacement cost of the properties.”

Matt Woodford, president of Cornelius, N.C.-based Independent Property and Casualty Group, a member of the Financial Independence Group, put it this way: “Higher replacement cost results in higher premium.”

Some Carriers Are Pulling Out
In some cases, though, it’s more than high costs that make P&C coverage prohibitive. If you live in Florida, Texas, Louisiana, California, or other disaster-ravaged communities, you might not be able to find insurance at any price.

“It can be challenging to find home insurance coverage in certain markets,” Woodford acknowledged. “The weather-related events have caused carriers to pull out of these areas or place restrictions on new business.”

Among the factors that can make a property virtually uninsurable are its age and its proximity to the coast, he noted. “Unfortunately, some areas are so difficult to find coverage that [clients] have to go through a state-run plan,” said Woodford, referring to a patchwork of bare-bones coverage that Wealth Care’s Podnos disparagingly called “the insurer of last resort.”

Macroeconomic Factors
The industry’s woes aren’t just due to bad weather. Macroeconomic factors have taken a toll, too.

“Inflation and rising interest rates can impact the pricing of the liabilities of the insurers,” said Jennifer Kim, managing senior partner at Signature Estate and Investment Advisors in Los Angeles.

Higher interest rates generally help insurance carriers’s portfolio yields, she added, but inflation is taking too big a bite. “While P&C insurers receive higher bond yields, any higher-than-expected claim costs for home, auto, or other insurance lines can put a large strain on earnings,” she explained.

Many P&C companies have also invested in alternative assets, she said, such as commercial mortgage loans and structured securities, in an attempt to increase yield. “But [these alternatives assets] are less liquid and could have higher credit risk, which could expose them to greater volatility,” said Kim.

The industry’s data crunchers concurred about the effects of non-weather-related events.

"Rising interest rates will have a chilling impact on underlying growth across P&C lines, from residential to commercial property and auto, [and] 2023 is gearing up to be yet another year of historical volatility,” said Michel Léonard, the Insurance Information Institute’s chief economist and data scientist, at a webinar last November. “Stubbornly high inflation, the threat of a recession, and increases in unemployment top our list of economic risks.”

Can The Government Help?
So government interventions to improve the economy might help. Then again, insurance is regulated at the state level, not the federal level.

What’s more, state actions on insurance don’t necessarily benefit the insurance industry, though they may help policyholders. “The fundamental reason for the government to regulate the insurance industry is to protect the American consumer,” said Kim at Signature Estate and Investment Advisors.

For instance, in December Florida governor Ron DeSantis signed two bills designed to help property owners in his state. The first provided $750 million in disaster relief for residents impacted by the recent hurricanes. The second aimed to stabilize the state’s P&C market by reducing the wait time for claims benefits, improving the oversight of damage appraisals to prevent unfair practices, cracking down on frivolous lawsuits that add to insurance costs, and other measures that address non-weather-related cost drivers.