Best’s Special Report: Residual Market Policy Counts Double in Five Years Amid Weather-Related Challenges

Residual property insurance markets have experienced an influx of personal lines business that far exceeds its commercial lines counterpart, especially in states that are being more directly affected by the growing frequency and severity of secondary perils, according to AM Best.

The Best’s Special Report notes that policy count within U.S. residual market plans nearly doubled from 2018 to 2023, with most of that growth occurring after 2020. The growth occurred as rising claims costs in several states prone to weather-related catastrophes have prompted admitted market insurers’ to reconsider their risk appetites for property exposures, in some cases to specific areas within those states. Further storms, such as Hurricanes Helene and Milton, that cause widespread destruction will likely dampen the risk appetite of insurers in the voluntary market to provide homeowners coverage in affected states such as Florida, Georgia, and North Carolina.

A total of 33 states and the District of Columbia offer home insurance to qualifying individuals and businesses through a Fair Access to Insurance Requirements (FAIR) Plan, which were created in the 1960s in the wake of urban riots in a number of U.S. cities. The purpose was to make insurance available in areas with significantly high exposure to risks over which the property owners had no control. This approach has since evolved into pools of insurers selling property insurance to homeowners and businesses deemed to be high-risk and unable to obtain coverage in the voluntary market.

“FAIR Plan policies may cost more than private insurance in the voluntary market and may offer less coverage, but they do offer policyholders insurance protection where none would exist otherwise,” said David Blades, associate director, AM Best.

Seven Atlantic and Gulf states—Alabama, Florida, Mississippi, New York, North Carolina, South Carolina, and Texas—have a counterpart to FAIR Plans, called “Beach and Windstorm Plans.” These plans provide residents and business owners in designated areas coverage against hurricanes and other severe storms. The underwriting performance of homeowners’ business written through these FAIR plans deteriorated to a combined ratio of 110.9 in 2023, which increased from 104.5 in 2022.

Among individual state residual market entities, Florida’s Citizens Property Insurance Corporation is the leader by far, by both annual policy count and total premiums written. Citizens accounted for 68.7% of direct premiums written and 52.7% of all policies provided by FAIR Plans across the United States. Nearly all of the policies written by Citizens are residential, accounting for 99.1% of all FAIR Plan policies in Florida. FAIR plans in Georgia, Louisiana, and Florida have all reported an increase in policies of more than 200%, likely due to the growing frequency of severe weather-related events and rising insured loss totals.

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=347886.

To view a video on the report with the authors, please visit http://www.ambest.com/v.asp?v=ambfairplan1024&AltSrc=182.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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