Insured values in U.S. Gulf and east coast falls by 3%: AIR Worldwide

Growth in insured values in coastal regions in the United States fell from 7% to just under 4% per annum, in the last five years, according to a new report from AIR Worldwide.

In the aftermath of Hurricane Katrina in 2005, AIR Worldwide released The Coastline at Risk: Estimated Insured Value of Coastal Properties.

At that time, the report stated: “While the scientific debate over the effects of global warming on the frequency and severity of hurricanes remains inconclusive, there is no question that the significant increase in the number and value of exposed properties over the last decade has and will continue to contribute to increasing hurricane losses for insurers.”

The report was updated in 2008, comparing its results to the 2005 report showed that the insured value of properties in coastal areas of the United States had grown at a compound annual rate of about 7%, AIR notes. The latest update shows that since that time, growth in insured values in coastal regions has fallen to just under 4% per annum.

While market values plunged over the last five years — affected by the recession — replacement value did not; the factor that largely determines the insured values reported within the report.

“What drove the lower growth rates in insured value during the recession was a marked slowdown in the number of housing starts,” AIR notes in the report. “This lack of demand for new construction put a damper on labor and materials costs, which stagnated or rose only very slowly during this period.” Construction and sales are just now showing any signs of real recovery.

“Notwithstanding the slowdown in 2008-2013, a steady increase in the number and value of exposed properties along the U.S. Gulf and East Costs continues — and remains the largest factor increasing the hurricane risk of property insurers today,” according to AIR.

While above-average sea surface temperatures in the last nearly two decades have elevated hurricane activity in the open Atlantic, there is a far more certain driver of U.S. hurricane risk that the insurance industry faces, according to AIR.

“It is the continuing increase in both the number of insured properties in areas of high hazard and the replacement value of those properties,” AIR remarks. “AIR estimates that 38% of the total exposure in coastal states is currently located in coastal counties of hurricane states, which accounts for 16% of the total value of properties in the entire U.S.”