Jason Ott, president of Aon Private Risk Management, works on personal insurance programs, focusing on property and liability issues, with over 250 single-family offices and over 550 multifamily office clients. He discusses trends in property insurance, as well as the effects of climate risk on the insurance market:
What trends are you seeing in property insurance?
What we see from a loss trend perspective is an increasing number of $1 billion-plus catastrophic losses in the United States. Since 2013, the numbers have dramatically increased.
In 2023, there wasn’t a single event that had losses over $10 billion, but there was a high frequency of moderate events where the losses were between $3 billion and $6 billion. There were nine of these events in 2023, compared with one in 2022 and two in 2021. If we dive deeper, we see that most of these disasters weren’t what we normally think of: wildfires or hurricanes. There was only one major wildfire in this group, in Hawaii, and only one hurricane. It was the convective storms that hit the Midwest and the Northeast that caused a significant amount of damage: two tornado events, four flooding events and five hailstorm events.
This trend is driving higher premiums in the central and northeastern U.S. while also increasing focus on risk management. The age of the roof is going to become more important, because the roof is where a lot of the damage happens. We’re going to see more wind and hail deductibles, and we’ll also see a focus on carriers wanting homes to have roofs that are less than 20 years old. You might even see sliding scales, where the deductible increases or the amount of coverage decreases based on the age of the roof.
What issues have arisen with hurricanes in recent years?
Recent hurricanes have not been so much a homeowners insurance issue for high-net-worth insurance carriers. It was more about auto losses where vehicles were flooded. Moving forward, people need to have a plan for their vehicles, how to get them out of the way — much like people have hurricane plans to protect their boats. Some people are installing lifts in their garages, where they can drive their cars on and elevate the vehicles by several feet.
Many times, we have conversations with clients who say, ‘I’m not really worried about floods — I’m not in a bad flood zone and flood insurance is not required by my mortgage company.’ But floods happen everywhere, in every state. No one expected the level of devastation that occurred recently in North Carolina with a flooding issue at an elevation of 2,000 feet above sea level. There was a hurricane from a few years ago that hit Southern California and Mexico, and it caused flooding in Palm Springs. Who would have ever thought that flooding in Palm Springs from a hurricane or tropical storm would be an issue? But it was.
What can families do about the specific risks near where they live?
We have some families that have said, ‘I’m paying so much for wind insurance, but I don’t think wind is my issue. I think flood is my issue.’ We have connected some families with companies that will build fortified temporary structures that are placed around the home to protect from flooding.
For anyone that’s in the West or in a drier climate in the United States, having a wood shake roof is very, very difficult to insure. We are trying to identify clients that have wood shake roofs and are proactively advising them to consider replacing it with another roof.
Cypress trees are so beautiful, but they just go up in flames. For any clients who have cypress trees, we’re advising that they should be removed. Have your trees trimmed. Have a professional landscaper look at your property and create a defensible space around your home. Adding ember-resistant vents in California or the West is another very easy fix. If embers are floating through the air and one gets sucked into a vent, it could go in the attic and start a fire. There are now vents that have protection that will keep those embers from entering the home, and they’re very cost effective.
One other thing that I think is really important from a protection standpoint is water protection. Non-weather-related water losses are the biggest driver of losses in the United States. That’s a burst pipe inside your home, or water backup coming from sewer drains. It’s when something breaks and floods the house from the inside. There are sensors that can be connected to your alarm system. There are also water flow alarm systems, where if there is a burst pipe and water starts flowing, it will turn the water off. For homes valued at over $3 million, installing these devices is becoming a standard requirement for insurance coverage. We’re advising current clients where it’s not a requirement to consider installing these to avoid a future loss, and to help future insurability.
Having a non-wood shake roof, putting in ember-resistant vents, taking out cypress trees, putting in water protection – all this is going to help our clients be insurable in the future. If you’ve got a well-protected home, it’s going to help you as the market continues to change with what we’re seeing from the changing weather patterns and climate risk.
What does the future look like?
In our annual renewal meetings, we have been asking our clients to let us know before they make an offer to buy property so we can see if we can get insurance.
I had a family office client that was looking in a very specific area of California, and they sent several listings. After working with the insurance carrier, we found that four properties were uninsurable, and while the fifth could be insured, the coverage was costly and incomplete. Ultimately, the client decided not to pursue any of those purchases.
I would much rather help someone find the right home that we can insure properly than have them make a decision that ends up costing hundreds of thousands of dollars a year for insurance. That’s really impactful to a family office when you’re thinking about what your cost of living is going to be for the next 20 years. Many do not contemplate the cost or availability of insurance when buying a home, but it is critically important to sustain their wealth for their family.
Being proactive in your risk management and properly protecting your home will ultimately help our consumers and our clients be insured in the future. I’d rather work with the client to install features to protect themselves, so they never have to have a loss, and they don’t have to use the insurance.
