Canadian Underwriter

U.S. homeowner claims decreasing, loss costs on the decline, LexisNexis Risk Solutions study finds

October 27, 2016   by Canadian Underwriter

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Homeowner claims in the United States continue to decrease and loss costs are flat or on the decline, according to a new report from LexisNexis Risk Solutions.

siding house under storm2016 LexisNexis Home Trends Report, the inaugural study of home insurance trends released on Wednesday, is the first in a series of research reports identifying key insurance industry trends focused on perils – wind, hail, fire, water (weather and non-weather related), theft, liability and other perils. The report aims to provide insights that insurance carriers can utilize to make better business decisions, reduce risk and price policies as precisely as possible, said a press release from LexisNexis Risk Solutions, a provider of data, analytics and technology to help organizations predict and manage risk.

While the U.S. has already seen one major hurricane in 2016, overall loss across all perils declined by 30% from 2010 to 2015, driven largely by fewer claims and catastrophic events, LexisNexis Risk Solutions reported.

The study also found that claims spiked on average 46% in the spring time period, though the severity of claims tended to hold steady throughout the year. “When viewed through a geographic lens, loss costs from peril claims are highest in the Midwest due to the higher loss cost states making up ‘Tornado Alley,’ which based on peril claims should be more aptly be named ‘Hail Alley’ due to dollars lost per house,” the release said.

Other key findings by peril include the following:

  • Wind – Overall wind loss cost declined dramatically by 53% from 2010 to 2015. Catastrophic wind events declined over the past five years, dropping 20%, with the majority of claims generated in the Midwest. One key takeaway for carriers: efforts to increase deductibles and the introduction of Actual Cash Value Roof Endorsements in some areas appear to be having a positive effect;
  • Hail – For hail, overall loss cost declined 26% in the same time frame. Hail claims spiked by 50% in spring and summer, with a dramatic increase from April through June, making hail the second primary factor driving overall lost cost during these months;
  • Fire – Loss costs from fire have been in a steady decline, and overall loss across seasons is fairly level. But this steadiness belies the fluctuations in causes and claim severity. While fire frequency has declined, claim severity is up to compensate for frequency’s effect on overall loss cost. “The drastic reduction in claims is likely due to better fire prevention technologies,” the release said. Seasonally, fire peril can be grouped into two main causes: lightning and flame. Lightning causes spikes in summer while flame peaks in winter months, but contrary to popular industry belief lost cost holds steady across the year;
  • Water – Loss cost for non-weather related water remained steady, and seasonal loss cost trends were relatively stable throughout the year as well, with a slight spike in summers. On the other hand, weather-related water increased by a dramatic 156% from 2010 to 2015. This peril is highly seasonal, dominated by winter weather. While the country as a whole suffered more than usual from winter weather, the Northeast region in particular experienced dramatic losses;
  • Theft – Good news for this peril as loss cost due to theft steadily declined by more than 50% over the past five years, “with speculation that theft claims have decreased as the economy continues to recover”; and
  • Liability – Liability loss cost has dropped rapidly in recent years as has the severity of claims. The drop is largely due to unpaid, high-value claims which tend to have long lag times until payment. Liability claims rise in frequency in the summer, suggesting that summer-related activities incur a higher risk of injury and damage compared to other times of the year.