Perspectives on
Property Insurance
in Connecticut
Shoreline Preservation Task Force
Hartford, CT
June 6, 2012
Steven N. Weisbart, Ph.D., CLU, Senior Vice President & Chief Economist
Insurance Information Institute  110 William Street  New York, NY 10038
Office: 212.346.5540  Cell: (917) 494-5945  stevenw@iii.org  www.iii.org
Hurricane History
in Conecticut
Connecticut Gets Its Share
of Hurricane Hits
2
Track of “Long Island Express”
Storm of 1938
“Great New England Hurricane”
of 1938 a.k.a. “Long Island
Express” caused severe
damage through much of the
Northeast
600+ Deaths
$308 million
Source: WeatherUnderground.com, accessed February 4, 2006.
Storm Season of 1944:
A Busy one for the Northeast
Three storms affected New
England in 1944, including the
“Great Atlantic Hurricane”
46 deaths
$100 million damage
109mph gusts in Hartford
Source: WeatherUnderground.com, accessed May 31, 2006; NOAA loss & fatality figures.
Storm Season of 1954:
The Northeast Hit Again
New England areas hit by
Carol & Edna two weeks
apart
Carol: 8-10 ft. floodwaters
in Providence
Edna hits Cape Cod
Combined: 80 deaths,
$501 million losses
Source: WeatherUnderground.com, accessed May 31, 2006; NOAA loss & fatality figures.
Storm Season of 1960:
Brenda & Donna Visit
New England areas were hit
twice in 1960.
Donna killed 50, $387 million
damage along East Coast
Source: WeatherUnderground.com, accessed May 31, 2006; NOAA loss & fatality figures.
Hurricane Gloria Hit in 1985
Gloria 9/27/85
8 deaths
$900 million damage
Source: WeatherUnderground.com, accessed May 31, 2006; NOAA loss & fatality figures.
2011: Irene
Irene: 8/27/2011
$4.3 billion damage
8
Nightmare Scenario: Insured
Property Losses for a CAT 3/4 Storm
Insured Losses: $110B
Economic Losses: $200B+
$80
Distribution of Insured Property
Losses by State, ($ Billions)
$70
$60
$40
$30
$20
Total Insured
Property Losses =
$110B, nearly 3
times that of
Hurricane Katrina
$5
$4
$1
PA
CT
Other
$0
NY
Source: AIR Worldwide
NJ
Increasing Frequency
and Cost
of Severe Weather
10
Nationally, Number of Federal
Disaster Declarations, 1953-2012*
75
63
59
69
48
52
56
45
45
49
*Through May 29, 2012. Sources: Federal Emergency Management Administration at
http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.
11
09
07
05
01
99
97
95
There have been 2,062* federal disaster declarations since 1953.
Note that 2005 was a relatively low year for number of disaster
declarations in the 1996-2010 period,
but that year included Hurricanes Katrina, Rita, and Wilma.
13
32
36
32
93
91
89
87
85
83
81
79
77
75
73
71
69
67
65
63
61
59
57
55
53
44
43
45
38
31
11
15
24
21
23
22
25
27
28
23
34
38
29
17
17
11
11
19
22
20
25
25
The number of federal
disaster declarations set
a new record in 2011.
7
7
10
12
12
13
17
18
16
16
30
30
40
0
42
48
46
46
50
20
50
60
03
70
The average
number from
1972-1995 was
31.7.
65
80
From 1953-71, the
average number
of declarations
per year was 16.5.
75
90
81
100
99
The average
number from 19962009 was 56.8.
Federal Disaster Declarations
in Connecticut, 1953-2012*
Number of Federal
Disaster Declarations
Is this the start
of a new trend?
3
Two of the three disaster declarations in 2011 were for snowstorms.
*Through May 29, 2012. Sources: Federal Emergency Management Administration at
http://www.fema.gov/news/disaster_totals_annual.fema ; Insurance Information Institute.
1
1
1
1
1
93 0
0
95 0
1
1
1
0
87 0
0
89
0
91
1
1
85
1
1
0
57 0
0
59 0
0
61 0
0
63 0
0
65 0
0
67 0
0
69 0
0
71 0
0
73 0
0
75 0
0
77 0
0
79
0
81 0
1
1
55
0
Hurricanes
53 0
1
Hurricane
Gloria
83 0
2
97 0
0
99
0
01 0
0
03 0
0
05
0
07
0
09 0
From 1956-78,
there were no
disaster
declarations in
Connecticut.
3
From 1979-2010
there was a
federal disaster
declaration for
Connecticut
about once every
three years.
0
Hurricane
Bob
11
4
10 of the 14 Costliest Insured-Loss Disasters
in U.S. History Occurred Since 2004
Insured Losses, 2011 Dollars,
$ Billions
Taken as a single event,
the Spring 2011 tornado/
storm season produced
the 4th largest losses in
US insurance history
$50
$40
$30
Irene was the 11th
most expensive
hurricane in US
history
$19.1
$20
$10
$7.7 $8.5 $9.0
$6.5
$4.3 $4.4 $5.5
$21.3
$47.6
$24.0 $25.0
$11.9 $13.1
$0
Irene
(2011)
Jeanne Frances Rita
(2004) (2004) (2005)
Hugo
(1989)
Ivan
(2004)
Charley
(2004)
Wilma
(2005)
Ike
Northridge Spring
9/11
(2008) (1994) Tornadoes Attack
& Storms* (2001)
(2011)
Andrew Katrina
(1992) (2005)
*Losses will actually be broken down into several “events” as determined by PCS. Includes losses for the period April 1 – June 30.
Sources: PCS; Insurance Information Institute inflation adjustments.
13
US Insured Catastrophe Losses Now
Average Over Twice the Prior Amount
$ Billions, 2011 Dollars
$90
$80
$70
$71.7
2000s: A Decade of Disaster
2001-2010: $202B (up 122%)
1991-2000: $91B
CAT Losses
Surged on NearRecord Tornado
Activity
$32.3
$14.1
$11.2
$28.5
$7.3
$10.3
$15.9
$7.4
$32.9
$33.9
$6.0
$11.3
$14.0
$10.7
$12.3
$3.7
$10
$7.8
$20
$4.7
$30
$13.7
$40
$8.6
$50
$25.8
$36.9
$60
$0
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11*
The “new normal” for CAT losses: 2002—the best CAT year in the past 11—
was worse than 5 of the 11 years from 1990-2000.
*PCS figure as of April 6, 2012.
Note: 2001 figure includes $20.3B for 9/11 losses reported through 12/31/01. Includes only business and personal
property claims, business interruption and auto claims. Non-prop/BI losses = $12.2B.
Sources: Property Claims Service/ISO; Munich Re; Insurance Information Institute.
14
What’s So Different About Homeowners
(and Other Property) Insurance?
 It’s possible to have many very large claims at the same
time
 Need more liquidity (to pay claims quickly) than for other types of
insurance
 Often need adjuster to inspect the loss on-site; might need to
bring adjusters from far away (cost of claim adjustment is higher)
 Have to be more careful about insuring too many
properties in the same general area
 Most claims paid within a few months
 Little help from investments in providing funds for claims
 It’s possible to have no large claims in some years
 When that happens, in retrospect it will appear that the insurer
had excess capital and staff devoted to this line
15
Homeowners Insurance
in Connecticut
16
10.8%
16.5%
17.9%
18.0%
15.5%
14.0%
15.5%
11.1%
7.8%
5.4%
5%
7.4%
11.1%
4.5%
11.1%
9.5%
10%
5.8%
15%
10.0%
20%
13.8%
25%
19.6%
Homeowners Insurers in Connecticut:
Yearly Operating Profit*, 1990-2010
0%
-15%
-20%
-25%
-18.7%
-10%
-8.1%
-5%
Much of this was “wiped out” by
the catastrophic claims of 2011.
What’s left will be meager returns.
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
Connecticut’s homeowners insurance market produces modest
profits in most years and significant losses in others
*Operating Profit is defined as [Losses plus Expenses minus Investment Gain Attributable to the Line] as a Percent of Direct Earned
Premiums.
Sources: NAIC Report on Profitability by Line by State, various years; SNL Financial; I.I.I.
A Comparative “Affordability” Measure
for Connecticut HO Insurance, 2009
Rank (among the 50 states)
Average Premium
Average Household
Income
Premium/Income Ratio
$1,016
$92,807
1.09%
10th
(higher than most)
1st
(highest)
34th
(more affordable than most)
Although the average Homeowners premium in Connecticut in 2009
was higher than that in most states, when computed as a percent of
average household income, the premium was a smaller percentage
than in all but 16 other states.
Source: “The H-U-R-T Index (Homeowners Underwriting Resistance Test)” Property Insurance Report, February 13, 2012,
published by Risk Information, Inc., Dana Point CA, using data from the NAIC’s report, released January 2012, on 2009 Dwelling
Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/Cooperative Unit Owners Insurance.
2008-09 Connecticut HO-3 Insurance Average
Premium Growth, by Property Insurance Amount
Insurance
Amount
$150,000
to
$174,999
Percent of
HO-3
homes
2008 Avg
Premium
2009 Avg
Premium
2008-09
Percent
Change in
Avg
Premium
$175,000
to
$199,999
$200,000
to
$299,999
$300,000
to
$399,999
$400,000
to
$499,999
$500,000
and over
5.5%
8.8%
39.6%
22.0%
10.0%
10.4%
$617
$671
$812
$1,048
$1,304
$2,039
$625
$676
$817
$1,051
$1,307
$2,054
0.7%
0.6%
0.3%
0.2%
0.7%
1.3%
The latest NAIC data of this type is for 2009. The table above covers 76% of
homes that are covered by HO-3, the most common policy type.
Sources: The NAIC’s report, released January 2012, on 2009 Dwelling Fire, Homeowners Owner-Occupied, and Homeowners
Tenant and Condominium/Cooperative Unit Owners Insurance, and the report for 2008 released a year earlier; I.I.I. calculations
HO & CMP Premiums: 12-Month Percent
Change, Monthly, June 1999– April 2012
Recession
CMP
HO
14%
Latest HO
premium
growth rate:
3.5%
Hard
market
12%
10%
8%
6%
4%
2%
0%
-2%
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
CMP premiums declined
for over two years
Sources: U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index, Series IDs: PCU9241269241262 and :
PCU9241269241265; National Bureau of Economic Research (recession dates); Insurance Information Institute.
20
Residential Construction Price Index,
Monthly, 2001–2012*
Index (1986=100)
210
200
Annual
Construction
Price Changes
2002:
2003:
2004:
2005:
2006:
2007:
2008:
2009:
2010:
2011:
190
180
170
160
-0.4%
+2.0%
+6.5%
+6.1%
+6.4%
+2.4%
+5.5%
-0.9%
+3.3%
+5.9%
This measures only
the cost of materials
for construction, not
labor.
150
140
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
The cost of building a home rose by 45% from the start of 2001 through the end of
2011. But price changes didn’t occur evenly, and didn’t match change in the
Consumer Price Index.
Note: Recessions indicated by gray shaded columns. *Data for Jan 2012-Apr 2012 are preliminary
Sources: U.S. Department of Labor, Bureau of Labor Statistics, Producer Price Index, Series ID: PCUBRES--BRES
National Bureau of Economic Research (recession dates); Insurance Information Institute.
21
Flood Insurance
“Wind vs. Water” Isn’t an Issue
for Property Owners with
both Flood and Property Insurance
22
41,094 NFIP Policies in Force
in CT at end of 3rd Quarter 2011
23
Number of Flood Insurance Policies
In Force in Connecticut, Feb 2012
Middletown
2,762
Stamford
2,748
2,655
Fairfield
2,173
Norwalk
1,823
Stratford
1,709
Bridgeport
1,570
Greenwich
Westport
1,325
Old Saybrook
1,322
1,271
East Haven
West Haven
1,070
1,022
Stonington (town)
831
Groton*
0
500
1,000
1,500
*Includes City of Groton, Town of Groton, and Groton Long Point Association
Source: http://bsa.nfipstat.com/reports/1011.htm#CTT.
2,000
2,500
3,000
Private Flood Insurance
is Available in CT
At Least 22 Brokers are Licensed to Sell
Private Insurers’ “Excess” Flood Insurance in
CT
 Some private insurers also provide “first dollar”
flood insurance, particularly for areas that are not
eligible for NFIP policies
 Some of the largest HO insurers, and some
smaller but still substantial insurers, sell excess
flood insurance
25
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www.iii.org
Thank you for your time
and your attention!