High insurance premiums for the average Texas home are approaching crisis levels. Among the reasons for the dramatic surge in costs: the impact of high inflation on the pricing of building supplies and extreme climate change and weather events that are increasing in frequency and severity in Texas, as well as across the country. The state-created insurer of last resort, the Texas Fair Plan, is of very little help with its equally high premiums. What does this mean for communities across the state—and, by implication, for communities across the country—and how is it impacting the muni market?
Transcription:
Sarah Sullivant (00:09):
Hi everybody. Thanks for joining us for this panel on addressing the impact of the pullback of property insurers. My name's Sarah Sullivant. I am Sector Lead for local governments at S&P Global Ratings, and I'm happy to be moderating today's panel. We have a really good panel for you today. I'm joined by Ritonya Wilkins, who is Public Entities Insurance Planning Consultant for HilltopSecurities, and she is responsible for supporting their professionals and clients with PNC Commercial Lines insurance and also Johnathan Yazdani, who's CEO of THORE, the Homeowner's Reciprocal Exchange that is a tech enabled insurance startup focused on serving Texas homeowners and is just about to write their first policy in June. So we have a small but mighty panel here to talk about property insurance, and I'm just going to set the stage a little bit with some numbers. I hope you'll forgive me.
(01:08):
I'm an analyst. I'll try not to go too deep into it, but these shouldn't be a surprise. We know that premiums are going up not only in Texas, but everywhere. We have non-renewals of coverage driven by more damaging weather and weather related losses. I guess before we get into it, quick show of hands, how many of you're based in Texas? And keep your hand up if in the last 24 months you've sought a different insurance carrier because of rising premiums or keep your hand up if you've received a non-renewal notice in the last 24 months and I'm only keeping my hand up not in solidarity. I actually have, so I might be the only one I can't see all of you received. A non-renewal notice had to change carriers, so it's an issue. We'll talk about how big of an issue according to data from S&P market intelligence based on approved filings through December, 2024, the average effective rate increase for homeowners insurance was 10.4% in 2024.
(02:14):
That's across the us That follows on a 12.7% increase in 2023. That's also across the US. In 24, 33 states had double digit calculated effective rate increases, and in 24, in 2024 and six states rose by more than 20%. Texas was not among those in 24, but it was in 2023 and cumulatively between 2019 and 24, homeowners rates have increased by 45% nationwide and 55% in Texas. So it really is going up a lot. We're going to talk about why, what's driving all that? We know that it's higher costs, more damaging weather events. We'll talk about some of the ones that are happening here in Texas and we know that the pace of rate increases in Texas has slowed a little bit this year. Real estate markets still factoring in these higher costs and Texas' Fair Plan in the meantime is at its highest exposure in history with the most policies in the Gulf Coast counties.
(03:21):
Obviously Harris, Galveston, Fort Bend, Brazoria, but this is not only a Texas issue. We know that more damaging weather and disasters and greater cost to rebuild are happening across the country. It's a combination of climate of growth in highly exposed areas. The panels earlier today emphasized how fast Texas is growing and how fast Harris County and Dallas-Fort Worth metroplex are growing and rising replacement costs. So what do these changes in the insurance market mean for public finance entities, the municipal market and for communities across the country? That's what we're going to discuss today. I'll start with Johnathan. Can you talk about what the coverage landscape in Texas looks like? How is this manifesting in policies and assuming you can get coverage at all and maybe why my roof deductible keeps going up?
Johnathan Yazdani (04:10):
Well, so obviously the Texas market, it is a struggle out there and I think there's not a lot of shock when everyone sees the news, their local news, there's always especially the months of let's say February through May, there's some kind of hailstorm, there's something going on. So frequency is definitely up. One of the challenges of managing that is what do we do to make sure that we have underwriting profits, that we're able to grow our surplus so that we can grow with a growing state. All this growing state, you had discussed that there's more houses being built. So from our perspective, that's TIV being added, that means we need more capital to support that. In order to get that capital, you can either raise it, which means you have to show that you are getting underwriting profits or you're growing your capital organically. And so one of the many tools that you can do to limit or to at least limit your exposure and to make sure that you're hitting your returns on equity is one is through rate, which everyone saw in the charts that rates are going up, replacement costs are going up, but the other way you do that is through deductible.
(05:26):
Now, why deductible we were talking about earlier is for example, the Dallas area. There's hailstorms every year, multiples, and so what we find is an industry, we are having to replace roofs that are one and two and three years old. So we're replacing sometimes roofs two and three times. That means from a rate perspective, there's no affordable rate for that, right? At that point you're in the roof lending business because how do you amortize the cost of a replaced roof if you're replacing it every single year, then at that point that's all you're doing. So you go then to deductible and then we just say, Hey, this has become an intolerable risk from our perspective. And so we raise those deductibles so we're not having to amortize the cost of replacing the roof every single year.
Ritonya Wilkins (06:16):
Yeah, I know for a deductible what I'm advising my clients on, and if you see a 1%, you better keep it because it does not exist. I don't want to say ever across the board, but traditionally, if you go purchase a new home today, you're really looking at a 2 to 3% win held deductible.
Sarah Sullivant (06:38):
So it's factoring in through deductibles and obviously rising premiums. We've seen some carriers pull out of the market altogether, certainly limiting their coverage in certain areas. Can you talk, Jonathan, oh, go ahead.
Ritonya Wilkins (06:51):
I'll just also add when you talked about rate, as you see a lot of insurance carriers are increasing premium amounts. Jonathan talked about the capital that you have to raise, but also if they're not able to get enough capital, insurance carriers are also having to protect their solvency through reinsurance. So those costs are also getting passed back to the policy holders as well.
Sarah Sullivant (07:17):
And so can you talk a little bit about how THORE and reciprocal exchanges fit into this picture?
Johnathan Yazdani (07:24):
So the way Reciprocal Exchange works is that there's kind of two general ways of starting an insurance company. You have the traditional stock company where there's underwriting profits, there's underwriting losses, and depending how you did at the end of the year, then that determines your profits. A reciprocal exchange, which I think given the why I chose the reciprocal exchange vehicle for starting a carrier was this belief that I think even as an industry, I think we need to get out of the underwriting profit and loss business because of the severity of the weather. Because of the frequency. And so what we are is we are actually managers of the pool of risk for the insurers. And so the old adage where the insurance company denied my claim because they wanted to keep the money for themselves, that is completely removed from the calculus of running a reciprocal exchange. Ultimately it's member owned, everyone pays a surplus contribution to fill that surplus. And so my job is really just to manage that pool of risk, make sure like-minded insureds are within that pool and are a similar risk profile so that hopefully people can get a reasonable insurance rate and reasonable deductibles.
Sarah Sullivant (08:56):
Anything you'd add?
Ritonya Wilkins (08:56):
No, no.
Sarah Sullivant (08:59):
I guess I want to go on to the question, is it fair to say that the markets, real estate markets and maybe insurance markets are beginning to price in all of these increasing climate related risks and losses?
Ritonya Wilkins (09:15):
Yeah, they have to protect themselves. The solvency where I said it goes back to not only their profits, but also making sure they are able to purchase reinsurance. So that price of both the market being able to reinvest, but also the cost that it costs the carrier for reinsurance, it's definitely getting passed to us as well.
Sarah Sullivant (09:38):
I mean for a lot of us in this room where credit analysts, I know there are issuers in this room thinking about what happens when people go uninsured or underinsured if they're not able to afford those deductibles. I don't know if you'll have thoughts on that.
Johnathan Yazdani (09:55):
So I think the most interesting case of that is the California wildfires that just occurred where you have enormous exposures on the California Fair plan, but you also have all these kind of non-standard vehicles providing insurance in the surplus lines and you have risk pools. You have a lot of things that are not just traditional state farms writing this or Thora is writing this, and so we know exactly what the coverages are and how the loss will flow. And so there was a lot of discussion in the California wildfires for example, if a school burns down or a municipal building who is ultimately paying these losses because when there's kind of a, and I don't think it's a secret when there's a non-functioning market like there is in certain parts of California, then when the loss occurs, people actually don't really know how that loss is going to flow, how that loss gets paid is everyone adequately insured.
(10:57):
And it's not that. The interesting thing about it, and that's where it's really from my view, to have a well-functioning insurance industry is the California wildfires though horrible, and they're big numbers for our industry, they're actually not that big. There's Florida hurricanes that land in areas that we've probably never heard of that do dollar for dollar is much damage. And because of the Florida cap markets and reinsurance and the stability that they've been able to accomplish the last few years, those losses flow and they get paid in very kind of ordinary course of business. And I think there's, like I said, the California wildfires are an interesting one because that's an example of a $10 billion loss when hurricanes are 30, 40, 50, 60 billion, it's not really flowing in the ordinary course of business. And so that creates exposure for investors for everybody.
Sarah Sullivant (11:55):
I want to actually come back to the fair plan in a minute and talk about how states fit into this, but you brought up hurricane, so I'm going to go there. I was looking at some of the figures from Hurricane Helene and the damages that caused over triple digits, billions of economic losses and only about 7 billion insured losses. So we're talking about a massive number of properties that were uninsured for flood in particular, but also some of the other things, most of them in western North Carolina and eastern Tennessee. And so as a credit analyst, when we think about what happens when there's so little insurance coverage, we're talking to issuers about how quickly are you going to be able to rebuild and obviously that slows down rebuilding. You have homeowners taking left without a home in some of the worst cases, but unable to repair their homes or bring them back up to a standard that's livable, that depresses assessed valuation. You have disasters like that where there's lots of uninsured losses that widen inequality. And we've seen studies that show that after a disaster when there are uninsured losses, inequality gets worse, household savings go down. It really is a big public finance impact. So taxpayers end up dealing with the fallout lenders, I think the states. So maybe to pick up on the sort of state piece, Ritonya, can you talk about how the states fit in and the fair plan has been to this?
Ritonya Wilkins (13:27):
Repeat that one more time please.
Sarah Sullivant (13:28):
Can you talk about how the state fits into all of this regulating insurance, but also providing the fair plan?
Ritonya Wilkins (13:35):
Yeah, so for those that are not aware, but the Texas Fair Plan provides insurance to homeowners who've been denied usually by two or more private insurance carriers. It was created in 1995, and you really have to reapply for this every two years. Traditionally, policies in the fair plan do cost more. I've heard some in the 50% more range. So if you're paying $6,000 in a homeowner's premium, you could be paying nine to 12,000 and there are coverage limitations. So the Texas Fair Plan is truly a plan, a last resort, and they want to see that you did try and go to a private insurer. Do you have anything to add, John?
Sarah Sullivant (14:22):
Anything you have to add to that?
Johnathan Yazdani (14:24):
The fair plans are incredibly important. There always needs to be an insurer of last resort. I think the delicate balance is making sure that it doesn't accidentally become insurer of first resort. And you see that in some states, and so you always have to be cognizant about that.
Sarah Sullivant (14:45):
Sort of thinking about what it takes to have a healthy insurance market. I mean, we could compare it to California, we compare it to Florida. You mentioned Florida earlier and the cat and the citizens fund. So how does that compare and what does the healthy insurance market look like?
Johnathan Yazdani (15:00):
So in a healthy insurance market, I think Florida, I was reading an article that they had a very, very severe crisis and rates skyrocketed, and they now have more insurance companies opening right now
(15:15):
They had just announced another one opening than closed during their insurance crisis of two and a half years ago. And that's through, they've made some changes to the legal environment and frankly, there's investors that see an opportunity to get an adequate rate of return. And so capital is quickly pouring in. And I think there always has to be this, I feel it's important to have this recognition that we are actually an incredibly competitive market. And so I do come from the standpoint that if you allow for the market to go in and compete to charge the rates that they feel are appropriate, of course with oversight, a reasonable oversight, then we will quickly find the lowest rate. A fair plan, because it's an insured of last resort, has a totally different, it's a quasi-governmental function, which is everyone has to have insurance. If you have a mortgage on your house or even if you don't, it's your biggest asset, you need to have insurance for that.
(16:18):
And so those fair plans are incredibly important and that they create a backstop so that someone at least to some minor extent has coverage for their home. So it's important, but ultimately, I don't know that government wants to be in the job. In the business of running an insurance company, there's only $1 premium coming in. That means to pay losses and expenses and all that stuff. And so you've got to be careful about if government gets very, very involved, are they looking at the losses? Are they looking at the adequacy of premium or is it becoming a marketing vehicle for during election years? And so that's always a concern.
Ritonya Wilkins (17:00):
I'll, also add talking about allowing states to be actually able to charge in order to be competitive. In talking about Florida in 2024, there was a study noted and because the state regulators are able to set what the insurance carriers are able to charge, but $300,000 home in California, the average insurance cost was around 1400. In Texas it was around 3,800. And because Florida, they've kind of loosened up those stringent and carriers can charge adequate rates, it was around 4,400. So you hear about carriers exiting the market from California, but if they're only able to collect $1,400 in premium from what they should be doing around 38 to 4,500, that's a huge concern.
Sarah Sullivant (17:52):
And that's evolving now. I think partly, I mean it was already evolving before the wildfires, but I think maybe that accelerated this initiative to reform maybe the insurance and how the market was working in California and the ability of carriers to raise premiums based on forward-looking cat models as opposed to historical losses. So we're hearing that that may be helping. I don't know if you have anything to add to that, but it sounds like it's an evolving situation and maybe we'll see.
Johnathan Yazdani (18:23):
I mean the best judgment of that is, are carriers going to be opening California carriers? Are they going to be adding capacity? Is new capital going to be going into that market? And that'll be the ultimate test. I mean the money is how, I don't know a great way to say it, but the investor money is there if they see that there is a rate of return to be had and capital moves incredibly fast and efficiently. And so if they see that there is a adequate rate of return, capital will go in.
Sarah Sullivant (19:00):
I want to shift a little bit away from the market dynamics and more towards the role of resilience and prevention in all of this. And Ritonya, maybe you can take this one first. What do you think as an insurance consultant for public entities, what's the role of disaster resilience and prevention in this discussion? Can building resilient homes and infrastructure help make insurance more affordable or available in our communities?
Ritonya Wilkins (19:30):
Yeah, absolutely. Building resilient homes like the shingles on your home, being able to withstand hail or you putting storm water drainage systems or automatic shutoff valves, those are definitely things that show carriers. You also have a little skin in the game to protect your home, something not related to home or infrastructure. In a prior world, I was a public entity underwriter for a large commercial carrier. And one of the things just talking about public entities, and this was a large school, they had several hundreds of buses, and one thing that made their account really attractive was they had a risk management in place, a risk management plan in place if a flood were to happen. So being able to put things like that in place actually show the carrier that one, you do have something in place, but you're actually supporting it and if a loss does happen, you have means to move those measures to different places. So not only just having a risk management plan, actively having alert systems, watching weather control and also practicing those risk management plans was key in my being able to write that account and having appetite for it.
Sarah Sullivant (21:00):
So having a plan in place, I mean it sounds a lot like credit analysis. What are you doing to mitigate this risk? It makes it more attractive to carriers, and I think it sounds like the same is true maybe for homeowners as well. I don't know if you have anything.
Johnathan Yazdani (21:14):
So at my prior carrier, we had a pretty sizable book of commercial property and a really specific example, it was from the freeze you would have, there was an apartment complex where basically every pipe burst in that apartment complex. And so from a insurability component, actually the following year they came back to us as the carrier and they said, we now have a risk management in place. If there's a freeze or it's below this, we notify our insurers. We have maintenance on standby to turn off the water if something happens. Because there's this realization that if heaven forbid they had a freeze loss in the next 10 years for that account, they would be in probably pretty deep water in trying to find insurance. So I think being proactive is really important because of the way the market is, carriers can be more selective, and so they have to be, I think having, being aggressive in your risk management plan makes a lot of sense.
Ritonya Wilkins (22:19):
Yeah, I know carriers we would ask for two to four years now it is that 10 year history of loss runs to see, okay, what are you doing and what are you doing to mitigate those losses?
Sarah Sullivant (22:33):
Yeah, I want to talk about, this is for everyone, but we'll start with you and see where we go in the q and a. How do we channel and direct capital to areas that we're sort of closing that piece of the insurance cost that's attributable to physical risk exposure? I mean, some of it is really cost, just the rising cost of replacement and there's nothing really anyone can do about that. But in terms of the exposure, what can we do about this? What can states and local communities do to bring down these costs and make these more attractive?
Johnathan Yazdani (23:08):
So it's a really interesting question that takes a lot of things. And in the process of building a carrier and wrapping up that process, and you have to be able to raise money, get reinsurance, have software, do all these things and bring it all to one point, and then to be able to write your first policy. And so the best way that states, municipalities and all that stuff is having a, I would say an openness towards from a regulatory environment, yes, we want new carriers. Yes, we want new capital coming in. Hey, we do have an oversight role and that needs to be respected. And I do respect that a lot. They do serve an important role, but we also understand that we can give consistent and fast answers so that for example, if it takes X number of days to approve a license or how long it takes, this is the mechanism for approving rates and it's not arbitrary. So there's a lot from the regulatory standpoint that gives certainty to new capital that, hey, when I get in, I would be able to charge an adequate rate and I can rely on this department that they are, I don't want to say carrier friendly, not necessarily what their role is, but there is a, I guess both parties realizing that give us certainty in what we can charge and that you'll get us answers quickly and that we can get our license quickly and capital will come in to lower rates and give better coverages.
Sarah Sullivant (24:44):
It's almost like certainty is important in order for investments and capital to flow.
Johnathan Yazdani (24:52):
That's not really relevant to anything going on in the market structure.
Sarah Sullivant (24:54):
Nothing. Nothing, nothing else to say on that. Would you add anything that's on there?
Ritonya Wilkins (25:00):
I think you brought that home. I mean, allow carriers to charge what needs to be charged is the big one when it comes to state regulation. And then for carriers, I would just say if a homeowner is doing those home improvements to protect against those losses, compensating them in some type of discount program, other than if you bundle your home in auto, you get a discount. But just really rewarding that homeowner for their diligence and risk management if something were to happen as well. I think it could be both. We can share in these costs together.
Sarah Sullivant (25:42):
That's all the prepared questions. I mean any sort of thoughts that you want to offer additionally before we open it up for Q&A?
Ritonya Wilkins (25:53):
I mean, I'd just add, I'm not a credit analyst or anything, but I really like the numbers. Just a point for you to think about when it comes to insurance and the impact that it's had on local communities. So I'd say 10 years ago, insurance was around seven to 9% of your mortgage, and today it's 20 to 22%. So this is something that's not only affecting the individual homeowner today, but people that are wanting to purchase homes, it's a real problem with insurance as well. And it's not just the insurance companies wanting a fat pocket. It really is something that we should all be sharing and together.
Sarah Sullivant (26:37):
Well, don't forget about the roofers.
Ritonya Wilkins (26:39):
The roofers, the new trucks. I know we were talking about,
Sarah Sullivant (26:43):
I dunno if you want to tell that.
Johnathan Yazdani (26:45):
Yeah, so I think it's important to keep in mind is that I think last year was the first year that there had been an underwriting profit for carriers. The prior five years had been losses, and I don't actually know whether carriers in Texas logged an underwriting profit because there were derechos and hailstorms and hurricanes. And so I would just preface with being able to charge an adequate rate given if you have some kind of regulatory framework that allows carriers to make decisions, we are very, very good at being very competitive with each other and very quickly finding the lowest rate. And there will even be some who are charging below what they should be. And so I'm a big proponent of letting the market be dynamic, letting new entrants come in. That way we don't find ourselves in a position where we just have four or five major carriers. And I think that's ultimately bad for the market.
Ritonya Wilkins (27:49):
I agree.
Sarah Sullivant (27:51):
And puts the state in a difficult position too, I imagine. I want to open it up. Questions from the audience? I think we've got a mic floating around.
Audience Member 1 (28:07):
Hi Ritonya. So you did mention that states determine the cup of what insurance companies can charge. So with disasters also increasing states providing any kind of support to insurance companies so it doesn't fall all on the homeowners and if not, whether they're doing about some of them exiting the market like in California.
Ritonya Wilkins (28:31):
I'll let you take,
Johnathan Yazdani (28:32):
I'll take that. Yeah. So the, it's a really good question is that I think it's important to remember that like I said previously, there's only $1 of premium coming in. And so how do we not, and if the losses exceed and expenses exceed that dollar, we have the problem. We have a problem. And so your concern is how do we keep the homeowners from bearing the brunt of that? And that's an important thing to think about, but if taxpayers are also bailing out insurance carriers, that's also an end run around the homeowners eventually bailing out carriers. So there's only $1 to, there's only $1 coming in. And so I think you have to be cognizant about that. There have been some really interesting things in Louisiana, they had a program that I think was 25 or $45 million where if you agreed to write in certain capacity constrained areas for, and I'm off the cuff a few years, you had to ride in those areas, then they would actually pay you for having written in there, right? However, I mean, it's an interesting concept and it kind of got the wheels turning on the Louisiana insurance industry where they were riding in those areas. But that also means that carriers saw that either those areas were too prone to disasters or that they were not able to charge an adequate premium there. So you still get back to the same issue, which is being able to charge an adequate rate.
Audience Member 2 (30:12):
So I just want to link a couple of the points that were made. You had to charge at the beginning with the 20% plus growth in premiums in various states over the last couple of years, the points that's been made that insurance carriers are still not profitable in this current environment in most states here in Texas as well. And in your comment that you should budget that home insurance premiums have gone from maybe 9% of a mortgage to over 20%. So if we kind of spool that forward, if we see that continued 20% growth in premiums over time because real physical experience losses continue to mount and accelerate, at what point does this become a real affordability crisis, a real existential challenge to where people work and live, the viability of communities that exist today. And I guess layered into that as a question is, is there political appetite to really effectively allow communities that have developed to maybe have to go away and that eventually you have to have retreat from areas that are uninsurable at anything approaching an economic level
Sarah Sullivant (31:23):
With the softballs?
(31:27):
Let me start, and then I had love to hear your thoughts. I mean, we don't know what's going to happen in 2025, but I have based on just discussions with our own insurance analysts within S&P know that the premiums are not rising as fast as they have been in the last two years. So that rate of acceleration is slowing down. I think so I don't know that it's fair to extrapolate that level of increase going forward. I think some of that was we had 22% inflation between what, 2019 and 2024 let's say. So some of it is inflation, some of it is cost supply chain stuff that's been baked in your point about I think increasing frequency and damages of storms in particular, and flooding is a good one so far. It's really hard to see in the data growth slowing down. I mean, we've been talking about how fast Texas continues to grow in Harris County.
(32:37):
It's hard to know what the counterfactual is, but people are not moving to disaster prone areas. So S&P has written about this, and I should have had one of these charts, Nora's probably going to kill me for not having it up here, but we have, we've been thinking about where would this impact affordability. We know that it's a large percent of the premiums in some places and very disaster prone areas, and you would think that that eventually would have an impact on growth. And I think we imagine that in the long term it will slow it down. It hasn't shown up yet. And so I think the question about where does this become a public liability? Are we letting in maybe carriers that are not as well capitalized or well positioned to or more fragile positioned to deal with these losses in some places? Are we under pricing some of the real estate in places that are extremely exposed? I think there is a good hypothesis out there that maybe the valuations are going to start to fall, but what it does to growth is an open question. I think Anything you all would add?
Ritonya Wilkins (33:49):
No, I agree. I mean, it hasn't shown that things are slowing down. In fact, I mean Covid was a big year for buying homes. So it is questionable and it's like, well, when is it going to be an issue or when is it going to show up in the data? And I agree with, I haven't seen it yet, but I know it's there. I mean, even there was a study about how becoming a homeowner isn't the American dream anymore because some people are priced out of it now, but then you look at the data and it's not quite there.
Sarah Sullivant (34:27):
So maybe in some places, I mean, I think certainly we'll see, we're watching closely in Watauga County and Asheville and Western North Carolina to see how fast that place rebuilds, particularly given the level of uninsured losses that they saw as maybe test case. It's not Florida. Florida was Florida's much better prepared for these types of things. People know the drill, the coverage is there, they have layers and layers of it, and so to some degree they've absorbed that cost. But places that have not historically seen those types of incredibly destructive disasters, we'll see if that affects growth there.
Ritonya Wilkins (35:11):
Good question.
Sarah Sullivant (35:11):
Yeah,
Johnathan Yazdani (35:12):
Good question.
Sarah Sullivant (35:13):
Thanks for bringing it all together. Anything else? This is a tough one to follow.
Audience Member 3 (35:27):
Hi. So to y'all's knowledge, kind of following up on what he said, are there any science-based approaches to home building that prepares some of these properties for the devastating effects of some of these storms or anything like that that could potentially help moving forward to reduce some of the money that gets poured into these places after a massive catastrophic, catastrophic event comes through?
Johnathan Yazdani (35:56):
So what happens is that, so from a resilience standpoint, you had mentioned, I think it takes a, unfortunately, I think it takes a few events and it takes homeowners and communities realizing that, hey, this just wasn't a one off. This is going to be happening with frequency. And there's really great examples in Florida where unfortunately you did have homes that were really damaged by hurricanes, but you had some that were built to the newest code levels and they were standing without any damage. I think resiliency is a process, and it's a process unfortunately, of events occurring over and over again, prices of insurance adjusting because the things keep happening. And then kind of a technology and code enforcement and all that coming into play where we can actually come up with solutions that bring that, where we can say, no, we know for a fact that if we do these things, we can lower susceptibility to a loss.
(37:03):
And then you dial it back down and those communities become thriving and make sure they stay viable. I think for example, like hail, hail in Texas to be, it sounds counterintuitive, but hail season for insurers has become far more, you're far more nervous during hail season than you are during hurricane season because capital markets, everything flows towards paying for hurricanes, but it doesn't towards hill. And so for example, Dallas, where there's homes in the Dallas area where they've gotten three new roofs in three years, there is no rate we can charge for that. So that's going to come down to what do we do from a resilient standpoint to where these roofs are more resilient to hail damage. And so I think it's going to be a process.
Sarah Sullivant (37:53):
There is a really, I think, thoughtful and interesting study that Swiss Re did I think last year about resilience at the community level that's worth a read. I think it's called resilience or rebuild. And they looked at the sort of economic losses, foregone economic losses, which are difficult to model of not investing in resilience in certain communities, coastal communities in Alabama, I think around flood risk in particular. So that's an interesting one to look at. And they did find that there were significant economic benefits to investing in resilience and adapting codes. For example. I think there was also some other types of public infrastructure improvements and sort of floodplain type of adaptations. But it was an interesting look at what can you get, because the cost benefit analysis, as you know of investing in resilience is a difficult one to do. You incurred costs on the front end and it's really difficult to measure what the benefits are. But Swiss three tried to do it, and I think it was a good effort.
Audience Member 4 (39:07):
You used the term health of the sector earlier, and that triggered for me a bit of a different approach when it comes to wildfires and wildfire risk because there's so much attached to neighboring properties and not just the property itself, it becomes more of a system type of effect. So we're all reliant on private landowners to do their part to reduce our wildfire risk here in Texas. That's one of our biggest risks. Do you see anybody having forums of how we change that, having that type of discussion? Because I know it's not something you can write into a policy easily, but it is a ag exemption type risk that the state comptrollers office would sort of legislate of. How do we treat ag exemptions and then those farmers working to minimize our risks for wildfires, for example. Do you see any conversations like that happening?
Johnathan Yazdani (40:10):
So I will be the first to say that I am in the hail hurricane business, and fortunately I haven't had to have experience, knock on wood with wildfires in that they occur in Texas. There's a ton of data actually provided by Texas a and m on, there's all these great maps showing what the active wildfires are and all that stuff. But I think the wildfire modeling and what we're doing with satellite imagery and stuff from a industry perspective, I think there's actually, we have a lot of data as an industry to show what those wildfire exposures are, whether that's being shared and whether that's causing action on behalf by landowners, I don't know. But for example, from the California wildfires, there's model validation tests being run right now to see, to determine did this fire fall within what our models were saying? So these events are all horrible from a human toll, a toll from many aspects. That doesn't mean they weren't necessarily predictable and within a statistical model, which I think, so some of those exposures that we're thinking we don't have data on or nobody knows, there's in fact tons of models and satellite imagery and doing all this work to actually model that.
Ritonya Wilkins (41:32):
Yeah, I would echo that just as a underwriter. I mean computational risk. There are things that the underwriter is asking as far as what is the landowner doing, but I know a lot of if someone, let's say a farmer try to get a policy, a lot of the carriers would just exclude wildfire is what I saw a lot. But I too, I don't have any knowledge of what they're doing from a habitation stance.
Sarah Sullivant (42:06):
I'll just say one thing and then I think we have to think our panelists and wrap it up. And I'm not sure if this answers your question, but I know that California has a safer from wildfires framework that allows individual homeowners meet a certain set of standards in terms of what they've done to, in terms of preventive measures and resilience measures. And I believe if you meet that standard then under California regulation, under California code, I believe that the carriers may be required to cover you, although I don't quote me on that, but there's something, it connects back to the coverage and the regulatory framework. So I know California's thinking about it. We could spend a whole another panel talking about the regulatory differences between California and Texas, but maybe next year, please join me in thanking our panelists, Ritonya and Johnathan. Thank you for your questions.
Breakout 1: Addressing the Impact of the Pull-Back of Property Insurers
April 23, 2025 2:09 PM
43:11