January catastrophe reinsurance renewals highlight need for innovation

January catastrophe reinsurance renewals are in the books. In aggregate, reinsurance renewal outcomes were stable across the U.S. However, as BuildFax predicted a few months ago, catastrophe reinsurance renewals were disproportionally impacted by loss-hit accounts. A recent report from Willis Re found that carriers without catastrophe losses left these discussions with renewal rates that ranged from -2.5 percent to 5 percent. Meanwhile, renewals outcomes for loss-impacted accounts saw a much wider range of rate renewal hikes. Loss-hit carriers left these discussions with rates up anywhere between 5 and 20 percent.

This renewal season underscored the increasing need for carriers to engage in reinsurance discussions armed with validated property condition and history data. Especially as weather events transform and grow more severe over time, transparency into property changes is critical for carriers to properly manage risk. When carriers leverage verified property data, they not only see improved visibility into the risks on their book, but it also informs the level of coverage needed during reinsurance discussions.

Property data verification is increasingly necessary

It’s easier now than ever before for carriers to substantiate key information about the condition of certain structures on their book, be it the age of a roof, condition of the HVAC or electric systems, or even high-value additions added to a structure. This is particularly important in recent years after increasingly severe weather events led to substantial growth in residential maintenance and remodeling, which encompasses work performed on existing structures that does not include new construction activity, across the U.S.

Maintenance and remodeling activity have increased nearly 5 percent nationally on a rolling 12-month basis as of November 2018. In areas with substantial catastrophe activity, like Florida, this number skyrockets. For instance, in the year after Hurricane Irma made landfall in Florida, BuildFax data shows residential remodeling rose 20.29 percent in Florida compared to 6.64 percent the year prior. These remodeling rates have not slowed substantially and may even pick up in light of 2018 weather activity. The combined losses from Hurricane Michael, Hurricane Florence, Woolsey Fire and Camp Fire are expected to reach at least $42 billion. The resulting repair work for this activity, across California, Florida, and the Carolinas, will lead to substantial construction in 2019, improving the health of a property.

As these changes are made, carriers that rely solely on home insurance renewals for updated information may not have accurate data ahead of reinsurance negotiations. Changes made throughout the year likely aren’t captured, making existing estimates less reliable. In fact, BuildFax found that one Florida carrier had inaccurate roof ages for 56.9 percent of their book. Without validated data, carriers may be miscalculating how much coverage they need – or don’t need – ahead of the next reinsurance renewal period.

Validated data curbs adverse selection, improved negotiation power

As more premium-impacting activity occurs to a structure, carriers risk more than an inaccurate assessment of their reinsurance coverage. And as the personal lines marketplace sees increased competition from tech savvy startups, more carriers are adopting quality data to maintain their competitive advantage. Validated property condition and history data are key indicators of a structure’s risk. Relevant data includes everything from secondary modifiers like roof age to other measures of structure risk, like screened enclosures, hurricane shutters and other opening protections. As such, carriers that leverage advanced data services to bolster catastrophe risk models will not only be better prepared for their upcoming reinsurance renewal discussions, but also gain increased transparency to the risk on their books.

To learn more about how BuildFax’s property condition and history data can help during catastrophe reinsurance renewals, contact us today.