Insurance Carriers Pull Back From Property And Auto Markets

Nationwide and State Farm Announce Major Changes Amid Industry Challenges

Nationwide informed independent agents and brokers via email that the company aims to remain “a strong, stable partner that protects customers for the long-term.” Effective June 26, Nationwide will begin non-renewing monoline auto policies, starting with late-September effective dates, with state-specific nuances based on legal statutes or regulations. Additionally, 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. They recently also exited the High Net Worth market.

Nationwide’s email highlighted the challenges facing the insurance industry: “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.” Effective June 14, Nationwide also introduced “pre-quote documentation” requirements for personal auto and homeowners insurance in 26 states and for certain properties in 21 states.

Nationwide’s announcement follows other major carriers. On May 28, State Farm announced it would no longer accept new applications for homeowners or commercial property insurance in California. This decision was driven by historic increases in construction costs, growing catastrophe exposure, and a challenging reinsurance market. State Farm, the largest homeowners insurer in the U.S. in 2022 with a market share of 18.35% and over $24 billion in direct premiums written, experienced a $13.2 billion underwriting loss in its 2022 property-casualty business. This was the largest underwriting loss in its history, primarily related to auto insurance losses due to inflation, labor shortages, technology adoption, supply-chain disruption, and societal trends such as distracted driving.

Allstate also exited the California property market last year, citing the high cost of insuring new home customers due to wildfires, higher repair costs, and increased reinsurance premiums. AIG left the standard California market in January 2022 and now only offers surplus lines coverage, recently limiting homeowners insurance to high-net-worth clients in approximately 200 high-risk zip codes across several states, including New York, Delaware, Florida, Colorado, Montana, Idaho, and Wyoming. 

Farmers has ceased offering homeowners policies in Florida, pointing to historically high catastrophe costs and escalating reconstruction expenses. The combination of rising housing prices, increased lumber prices, and higher labor costs has significantly driven up the costs of claims, reducing profitability. Last year, six insurers in Florida were placed into receivership due to insolvencies, and in February, United Property & Casualty, which wrote about 135,000 policies in Florida, was forced into insolvency, largely due to losses from Hurricane Ian.

The property-casualty insurance industry is facing unprecedented challenges, described as the hardest market cycle in a generation. The combined pressures of economic inflation, legal system abuse, supply chain constraints, increasing catastrophic weather events, and historic cost increases for reinsurance are driving up losses and reducing capacity. Karen Collins, APCIA vice president for property and environmental, noted that these factors have created a perfect storm, resulting in significant deterioration in personal and commercial property lines.

According to the “2023 U.S. Property Market Outlook” by RPS, insureds in some markets are seeing premium increases exceeding 50%. The reinsurance renewal period at the beginning of the year had a major impact, with average reinsurance cost increases of 30% to 80%. Wes Robinson, national property president at RPS, emphasized the importance of early risk placement strategy discussions, as renewals are becoming more complex.

For personal auto insurance, inflation is driving up loss costs, and carriers are increasing rates and tightening underwriting guidelines. According to AM Best, the U.S. personal auto insurance market outlook was revised from stable to negative in September 2022 due to significant deterioration in carrier results. The annual cost of vehicle ownership has now surpassed $10,000, driven by rising fuel, vehicle parts, and maintenance costs. Theresa Breunig-Silbernagel from Main Street America Insurance noted that inflation and economic pressures are increasing the severity and cost of repairs and replacement vehicles, with no turnaround expected soon.

In summary, the insurance industry’s current landscape is marked by significant pullbacks from key markets, driven by economic, environmental, and regulatory pressures. As insurers adjust to these challenges, both agents and insureds must navigate a rapidly changing and increasingly difficult market.

Key Takeaways

Nationwide’s Strategic Pause:

• Pausing writing business in certain lines to remain stable.
• Effective June 26, nonrenewing monoline auto policies.
• Effective June 30, pausing new writings for habitational and lessor’s risk countrywide.
• Limited to small commercial, not affecting middle market, farm, or agribusiness.

Economic and Environmental Challenges:

• Rising inflation and catastrophic weather events impact the industry.
• Repair and replacement costs are increasing due to inflation.
• Insurance claims inflation outpacing consumer price index.

Impact on Auto and Homeowners Insurance:

• Significant increases in auto and homeowners insurance losses and combined ratios.
• Pre-quote documentation requirements introduced for personal auto and homeowners insurance in several states.

State Farm’s Market Withdrawal:

• Stopped accepting new applications for homeowners and commercial property insurance in California.
• Driven by high construction costs, growing catastrophe exposure, and reinsurance market challenges.
• Recorded a $13.2 billion underwriting loss in 2022, the largest in its history.

Allstate and AIG Adjustments:

• Allstate exited the California property market due to wildfire risks and high repair costs.
• AIG now only offers surplus lines coverage in California and limited coverage in high-risk zip codes across multiple states.

Farmers’ Withdrawal from Florida:

• Ceased offering homeowners policies due to high catastrophe costs and rising reconstruction expenses.
• Several insurers in Florida faced insolvencies due to Hurricane Ian.

Hardest Market Cycle in a Generation:

• Combined pressures of inflation, legal system abuse, supply chain constraints, and catastrophic events.
• Significant deterioration in personal and commercial property lines.

Reinsurance and Premium Increases:

• Insureds facing premium increases exceeding 50% in some markets.
• Reinsurance cost increases of 30% to 80%.
• Importance of early risk placement strategy discussions due to complex renewals.

Personal Auto Insurance Market Deterioration:

• Inflation is driving up loss costs.
• Carriers increasing rates and tightening underwriting guidelines.
• Annual cost of vehicle ownership surpassing $10,000.
• No expected turnaround in the near future.