Lockton Re report delves into the impact of property construction dynamics on insured losses

Lockton Re report delves into the impact of property construction dynamics on insured losses | Insurance Business Asia

Reinsurance

Lockton Re report delves into the impact of property construction dynamics on insured losses

Portfolio composition is critical from a reinsurance perspective

Reinsurance

By
Kenneth Araullo

In its new report titled “Exploring Property and Exposure Trends,” and as part of its “Storm Dynamics and the Reinsurance Industry” series, Lockton Re delves into the evolving dynamics of property exposure and their impact on the reinsurance industry, with a particular focus on hurricanes and the changing nature of residential and commercial structures in terms of their resilience to storm damage.

Claude Yoder, global head of analytics at Lockton Re, highlights the significant shift in hurricane-related losses since 1992. He notes that seven hurricanes have surpassed the inflation-adjusted loss record set by Hurricane Andrew, with six of these occurring in the last seven years.

“Six of these have made landfall in the past seven years as changes in population, exposures, climate, inflation, and social factors have drastically increased losses,” Yoder said. “While severe hurricane frequency has increased, building construction changes have helped shield owners and reinsurers from even greater losses.”

The research underscores the rising population density in hurricane-prone areas and how it affects property values and repair costs. Contributing factors include inflation, supply chain issues, and wage growth, all of which have collectively elevated the value of exposed properties. The report also points out that while macroeconomic conditions are stabilizing and general inflation has eased compared to the previous year, a persistent high level of inflation remains the highest since the early 1990s.

Building codes, particularly in Florida, have been identified as a key element influencing property damage and loss estimates. According to Lockton Re senior catastrophe modeler Brendan McCann, the impact of building code changes in Florida between 1990 and 2000 was very notable as a significant reduction in loss estimates for a hypothetical Florida property portfolio was observed. Further improvements in building codes in recent years have continued to lower loss estimates.

The study also addresses the increasing allure of coastal areas, which leads to greater population density in regions susceptible to hurricanes. However, it observes that building codes are effectively reducing property damage. From a reinsurance standpoint, the composition of a portfolio of buildings and homes is crucial in assessing its risk profile and understanding the associated risks.

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