Summary
The property insurance claims market is constantly evolving and facing new challenges. Contractors who work in this field need to keep abreast of the latest trends and developments that affect their business and their customers. In this article, we will examine some of the most significant trends in the contractor space of the property insurance claims market, such as:
- Volume trending: how the number of claims assigned to contractors has varied and what drives the demand for their services
- Severity trending: how the average cost of repairs and replacements has changed over time and what factors influence it
- Weather exploration: how recent weather patterns influence claim volume and what regions experienced the highest volume and growth in wind and hail claims between 2022 and 2023
By understanding these trends, contractors can better adapt to the changing market conditions, optimize their performance and profitability, and strengthen their relationships with their carrier partners.
All of the data contained in this article comes from Verisk Property Estimating Solutions’ Xactimate and XactAnalysis products; the industry’s largest and most comprehensive estimating and workflow-enabling suite of products.
Volume Trending
In this section we will explore trends as they relate to the volume of claims in the market, also called assignment count. Assignment count represents the best indicator we have to understand the level of mitigation, restoration, and other insurance-related trade work that is required by the market at any given time.
By Industry Type
In Figure 1 below, you can see 2023 experienced the most significant volume amongst the past five years. Total volume in 2023 was over 9.2M assignments, a significant increase from 6.5M in 2022. Volume tends to spike in the summer months and drop in the winter months. This seasonal disparity in volume is largely driven by severe weather events that occur during the warmer months of the year.
An interesting trend of note is that when volume spikes for carriers, they tend to send assignments to their independent adjuster (IA) partners proportionately more often than they send assignments to their contractor and mitigation partners. Assignments running through mitigation-specific assignments tend to represent between 5-7% and contractor-specific assignments account for roughly 9-12% of the total volume, regardless of whether that volume is increasing or decreasing. IA volume fluctuates much more drastically, between 28-42% of the total volume, with the proportionate share tending to increase as overall volume increases.
By Type of Loss
With relatively even market share regardless of overall volume, it is not surprising to see that nearly two-thirds of contractor assignment volume is related to the water type of loss, as shown in Figure 2 below. Water claim volume is relatively consistent through time as it is largely, although not entirely, independent of severe weather events.
Further driving home the point of lower volume variability, Figure 3 below shows the quarter-over-quarter volume difference for water losses, weather-related losses, and all other types of loss. The red columns are water losses and variability tops out around 25% for most quarters. Variability for weather-related types of loss surpasses 200% more than once and nears 50% for most quarters. The remainder of types of loss experience mixed volatility topping out at 49% and trends normally around 25% from one quarter to the next.
By Geography
The map in Figure 4 below shows the year-over-year (from 2022 to 2023) percentage growth by state. Colorado saw the highest year-over-year growth among all states in the US over that time period, coming in at 173% growth. Oklahoma, Kentucky, Wyoming, and Missouri round out the top 5 in terms of the highest-level of YoY growth when expressed as a percentage.
Although it didn’t make the top 5 percentage growth states with 75.4% YoY growth, Texas experienced the highest overall growth by assignment count during that time period; increasing from 693k assignments in 2022 to 1.4M assignments in 2023, as shown in Figure 5 below. Texas had nearly double the assignment volume as the next highest-volume state in 2023; which was California with 768k assignments. The increase in volume for Texas can largely be attributed to hail events.
Severity Trending
In the previous section we covered the quantity of claims and in this section we’ll cover the cost of those claims. The average severity for claims is influenced by a multitude of factors, most of which are outside of the contractor’s scope of control. Things like weather patterns, supply and demand, inflation, materials pricing, and many others. With that in mind, however, it is still useful to understand how these things play out through time so we can understand the bigger picture.
A note about severity: for these visuals, we are excluding $0 value assignments from the averages in order to control for differences in workflows from one company to the next. Additionally, data for the most recent time periods (generally 3 months) will appear to be less severe than it actually is. This is because the most complex/severe claims have not had their assignments completed and returned yet, artificially lowering the apparent RCV values until they are returned and those high severity claims bring the average up. This process is referred to as “data maturity.”
Residential vs. Commercial
Commercial claims tend to involve larger areas of damage, more expensive materials, and extra considerations and access restrictions when compared to residential claims. For these reasons, commercial claims tend to be much more expensive than residential claims; as shown in Figure 6 below the average RCV for a commercial claim was $54k in 2023 compared to $16k for residential claims. This significant disparity between commercial and residential claims means that commercial claims represent approximately 10% of the total claims spend in the market even though they typically only account for 3-5% of the overall volume.
By Type of Loss
Examining severity by type of loss allows for a better understanding of anticipated cost for different trades that are more likely to be involved in a claim. For example, wind and hail claims will involve roofing, siding, gutter, and window tradespeople at a higher frequency than drain/sewage losses.
Most non-weather types of loss experience relatively low volatility in severity through time. As an example, as seen in Figure 7 above, the average water claim only experienced volatility of $4.1k over the timeframe represented above. This is just a 46.6% variance through that 5-year time period.
The highest volatility is generally experienced in extreme or severe weather-related types of loss. Because these types of loss are heavily seasonal, we would not expect claims in the “offseason” to be as severe as those occurring in “storm season.” The hurricane type of loss experienced a comparatively wide range of $34.4k/215.9% delta through that same 5-year period represented above. Additionally, due to their heavy differences from one event to the next (e.g. a Category 1 hurricane with wind speeds of 90 MPH vs. a Category 4 hurricane with 140 MPH), severity from one year’s main storm season to the next can vary also widely. To illustrate this point, note that the average hurricane severity in Q2 2021 was $32.2k and the next year, Q2 2022, the average severity jumped up to $48.7k. This is a $16.5k or 51.1% variance in just a single year.
By Trades
Tracking the average estimated amounts across trades through time can help provide additional context for the individual tradesperson. Similar to the types of loss shown above, most non-weather trades tend to fall within a relatively tight range through time, trending upwards with the general inflationary environment. More seasonally impacted trades, such as roofing, tend to have higher levels of volatility, however, this volatility tend to be less severe than when viewed by type of loss. To this point, the highest level of volatility in any one of these grouped trade groups is seen in roofing/siding/windows. Through the five year time period represented in Figure 8 below, these grouped trades experienced a low estimated amount of $7.6k and a high of $14.5k, or a 90.9% variance.
Weather Exploration
Perennially, wind and hail are the biggest drivers for volume for property insurance claims, especially in the residential market. According to Verisk’s Respond, 2023 actually saw a 1% decrease in the number of days with hail, with only the smallest measured hail size (<1”) experiencing a slight increase over 2022. However, while the areal coverage of hail was similar in 2022 and 2023, there was a 137% increase in the area impacted by the most damaging hail sizes (>2”) and an over 300% increase in the total number of roofs impacted by these sizes, as noted in Figure 9 below. To summarize, while 2023 did not see more hail overall, when it did hail in 2023, it tended to be larger and impact more populated areas than in 2022.
Across the country, there was a wide disparity in year-over-year changes for damaging hail from one region to the next. As shown in Figure 10, the most significant increases came in the southern Plains, with this region experiencing over a 117% increase in days with reported 2” or greater hail in 2023 over 2022. This is especially impactful considering that this region generally experiences some of the most significant storm activity annually. There were also notable increases across the Southeast. On the opposite end of the spectrum, the Mid-Atlantic region is the only to have experienced drops in both days with 1”+ and 2+” hail between those two years.
Switching from hail to wind tells a mostly similar story, with increases in the number of days with damaging wind gusts and significantly damaging wind gusts across the southern Plains and Southeast, as shown in Figure 11. There were also increases in the Mid-Atlantic region in contrast to the change in hail days. On the other hand, the New England and northern Plains regions experienced decreases in both 58+ and 75+ mph wind days between 2022 and 2023.
The first four months of 2024 have been off to a slower start than 2023 in terms of severe weather (hail and wind) related claims. However, looking ahead, Verisk’s Respond estimates that May storms (May 1 – May 18) are likely to have damaged 2.2 times more roofs due to hail and 2.6 times more due to wind year over year. While this will not erase the delta seen over the first four months, it will start to close the gap, with an uptick in claims anticipated over the coming weeks.
The 2024 Atlantic hurricane season officially kicks off in less than 2 weeks and all seasonal predictions are for a well above normal season. However, seasonal predictions are not always perfectly accurate and even when they are accurate, the level of insurance claims generated by these events is still dependent on whether and exactly where landfalls occur. Since 2000, there have been 8 seasons where researchers from Colorado State University have predicted in their April prediction that 16 or more tropical storms or hurricanes will be named in the Atlantic, including this year’s prediction of 23 storms, the largest number they have ever predicted. In the 7 prior years with well above average predictions, 1 year saw just 10 storms (below average), 3 years saw 14 or 15 storms (near average), and 3 years ultimately saw above average activity, with 2011 recording 19 storms, 2020 recording 30, and 2021 recording 21. And while 2011, 2020, and 2021 all saw well above average activity that generated large volumes of claims, some years, like 2013 which was predicted to be above average but ended up being just average, generated few claims with limited impacts from tropical storms to land. Ultimately though, if 2024 does confirm as a well above average hurricane season, based on correlations with historical claims activity and frequency of events, on average it would generate above average claim activity. Verisk Weather Solutions meteorologists review of historical data, to include historical data from PCS, found that the top hurricane seasons with 17 or more named storms have generated on average nearly five times more claims than the bottom hurricane seasons with 14 or fewer named storms since 2000.
Conclusion
Although we’ve seen large variances in costs across time periods, we have also identified underlying root causes for that variability. Trades and types of losses that are less influenced by severe and catastrophic weather events tend to be more predictable and steadier through time when compared against those that are heavily influenced by these factors.
Costs are not the only thing heavily influenced by weather patterns in the property insurance claims space; volume is also significantly impacted by weather across those types of loss and trades. The areas with the most significant year-over-year growth in volume tend to be in states that experienced unusually high storm or severe weather activity in a given time period.
Aaron Brunko, President of Verisk Property Estimating Solutions, & David Obert, CPO of Verisk, sit down with Michelle at ACCESS this week to talk through the claims volume and what’s happening. Some contractors are sharing that their volume is steady while other contractors are concerned that things are really slow. Aaron and David will help pick that apart and answer the question on everyone’s mind: What’s really going on with claims volume?
Is there a stat or data you’d be interested in knowing more about from Aaron and David? Email your question to michelle@candrmagazine.com!
