Aon Benfield: U.S. Homeowners Insurance a Growth Opportunity

U.S. homeowners insurance offers significant growth opportunities for personal lines insurers, as positive rate momentum is improving the outlook for many states, according to the Aon Benfield Homeowners ROE Outlook 2013 update.

The study reveals strong growth in the homeowners line between 2009 and 2012, with direct written premiums increasing 15 percent countrywide. Only Nevada saw a decline in premium volumes, as written premiums decreased by 1.5 percent during the period.

By comparison, personal auto direct written premium growth was only 6.5 percent during the period.

The report concludes that insurers’ prospective after-tax return-on-equity (ROE) for homeowners insurance is 4.6 percent on a countrywide average, and 8.0 percent excluding Florida.

While the countrywide outlook is essentially flat relative to last year’s 4.7 percent estimate, at the state level, positive rate momentum is improving the outlook for many states, according to Aon Benfield.

Some 36 states have prospective ROE outlooks better than the 8 percent average, and 28 states have prospective ROE outlooks 12 percent or greater.

Positive rate momentum has been evident, as approved rate changes in homeowners lines have averaged a 7.7 percent increase across the U.S. over the past 18 months, the report finds.

Gulf states achieved some of the highest average rate increases, particularly Texas, where rates increased 12.6 percent, while the hurricane-exposed state of Florida average rate increase was 8.2 percent.

A press release cites Parr Schoolman, Aon Benfield Global Risk and Capital Strategy Team Leader:

Overall, the homeowners line of business is still not producing adequate returns for the industry, but given the recent rate and underwriting actions, for the first time we are seeing an improving outlook for many states, especially in non-coastal regions. Although more can still be done in terms of pricing segmentation, capturing the cost of catastrophe risk in rate filings is becoming a more widespread practice within the industry, which is a positive for the long term prospects in this line of business.†

Check out I.I.I. facts and statistics on homeowners insurance.

2 thoughts on “Aon Benfield: U.S. Homeowners Insurance a Growth Opportunity”

  1. The degree of rate momentum in general is good news for insurers, where the premium effects of an average 7.7% approved rate increase might be accepted by homeowners simply as inflation.

    But what affect will rate innovation, to better capture the cost of catastrophe risk have on the market?

    The Aon Benfield report suggests the necessity for ‘more granular pricing’ at a refined territory level, to better match rates to cost variations. While this seems logical from an insurer’s business perspective, the question is how far should or will insurers go with such granular approach.

    As long as the early rate innovators must compete with insurers still adopting a broader or traditional approach to rates, there is scope for great and increasing premium variation.

    Notwithstanding profitable, risk adequate rates, consumers have their own expectations regarding premium value. Consumers in many areas may need and begin to shop the market more than they have in the past, in order to
    find an affordable or acceptable premium.

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