A Silver Lining

Sam Geraci

Bad weather events are on the rise, leading to an unusual amount of opportunity for agents looking to build their businesses and support their communities. More storms have caused higher rates and product changes, leaving customers with a more complex array of choices—and a greater need for expert advice than ever before.

If it seems to you that those proverbial “once in a century” storms are happening a lot more often these days, it may be the case.

Even adjusting for inflation, the number of storms causing at least $1 billion in damage is rising rapidly. From 1980-1988 there were 27 billion-dollar storms. In 2023 alone there were 28, while the first 10 months of 2024 saw another 24.

The cost of these storms is enormous. From 2017-2024, the total cost of billion-dollar storms in the U.S. amounted to $1.2 trillion ($150 billion a year), according to government statistics. By comparison, throughout the entire quarter century ending in 2004, the total cost of billion-dollar storms was just $750B ($30 billion a year).

The increase has largely been caused by more wind and hailstorms than in the past. In 2023-2024 there were 36 wind/hailstorms costing at least $1 billion. The entire 1980s and 1990s—two decades—had only 24 such storms.

Hurricanes are also becoming more severe, although not necessarily more frequent. Prior to 2004, only one hurricane in U.S. history caused more than $25 billion in damage (Hurricane Andrew in 1992 cost $60 billion in 2024 dollars). Since 2004 there have been 15 hurricanes costing $25 billion or more.

Winds of change

There are three major causes of the increase in billion-dollar storms.

First, the U.S. just has more people, and they are living in more expensive houses. The Census Bureau reports that the number of occupied housing units in the U.S. has grown 64% since 1980, while the average home price has increased 80% after adjusting for inflation. That means the value of all U.S. houses has almost tripled in real, inflation-adjusted dollars since 1980.

Second, people are living in areas more likely to be hit by storms. Before World War II, Florida had fewer residents than Arkansas. But the invention of affordable air conditioning means that more people can live in the Sunshine State all year and enjoy its warmth and beauty. Of course, this has the downside of exposing more people to hurricanes.

Finally, there are larger hail stones and stronger hurricanes than in the past. Scientists debate the exact causes but there is no doubt that hail and hurricanes are more destructive.

Most houses can survive small hail stones. But larger ones can cause a lot of damage. So larger hail stones mean damaged roofs while smaller hail stones have virtually no effect.

Through the roof

The industry is responding in ways that agents can leverage to build their business. Of course, rates are going up, particularly in the middle of the country and the southeast—areas that get the most wind/hail and hurricanes. Overall, the homeowners’ insurance industry increased premiums a staggering 45% from 2022-2024, the most in history. The increased premium in those three short years is greater than the entire industry’s size in 2004.

But it is also changing policy language in ways that are important. While carriers are making somewhat similar changes, each carrier’s changes are different and that gives agents an important opportunity. For example, most carriers are starting to use some version of Actual Cash Value (ACV) to pay claims on damaged roofs. But every carrier’s version of ACV is different. Some require ACV on roofs from day one. Some only require it after a certain number of years.

Every carrier has different depreciation and surcharge schedules for different roofing materials. Most carriers break roofing materials into six to eight different material types. But at least one, Progressive, uses 18 different types in some states. And carriers depreciate different roof materials at different rates. For composition shingles, multiple carriers were found using a 4% per year depreciation schedule so that after 10 years the roof was considered 40% depreciated (i.e. retaining only 60% of its replacement cost). But Nationwide often uses 3% per year depreciation so that after 10 years, the roof is only 30% depreciated. This means that customers would receive 70% of its replacement cost. For a $30,000 roof, that would save a Nationwide customer $3,000 compared to its competition.

And that’s not the only example. State Farm typically does not depreciate slate roofs. Other carriers often use 1% per year. These savings can really add up and educating customers on the differences can give agents a vital edge.

And there are other differences including the extent to which carriers cover:

• Cosmetic damage to pipes and drains
• The undamaged portion of damaged roofs
• Increased cost from new ordinances

Some carriers cover these items; some have optional endorsements. And there are other differences, including the size of minimum deductibles and which perils they cover. Some carriers apply percentage deductibles only to wind or hail. Some apply them to more perils.

Meanwhile, some carriers are limiting or stopping underwriting in certain areas. In Florida, for example, more than a dozen carriers have stopped or limited underwriting homeowners’ insurance in the last couple of years including Farmers, AAA, Progressive and Lexington (a subsidiary of AIG). The volatile weather is not the only reason—Florida’s challenging legal environment also played a role. But the risk of hurricanes certainly played a central role.

Easing the pain

As you might expect, shopping for homeowners’ insurance is increasing as rates are rising and coverages are being restricted. Homeowners tend to be older, so there has been a large increase in shopping among Baby Boomers (a 35% increase according to Transunion, the largest increase among any age cohort), something almost unique in insurance history.

Additionally, homeowners tend to be multiline customers. When they shop their homeowners’ insurance policies, they usually shop all their policies. This is why auto shopping remains near record levels despite fewer large auto insurance rate increases. All this presents a rare and rich opportunity for agents to distinguish themselves and build their businesses.

Agents should educate their customers about the advantages their carrier(s) enjoy over their competitors. Make sure customers you talk with are quoting apples-to-apples when they quote with a competitor.

Customer education goes beyond explaining the differences between competitors. It should include advice on deductibles. Casualty events like wind/hail or hurricane losses may be deductible on federal income taxes to the extent the loss is not reimbursed by an insurance company. Unreimbursed losses from a federally declared “major disaster” are almost fully tax deductible. While this might sound rare, the government declares about two major disasters per week and they are becoming more common. This deduction applies even if the taxpayer does not itemize their deductions. It is particularly helpful in the southeast since hurricanes that make landfall there are often named “major disasters.”

Unreimbursed losses from other federal disasters (not the “major” ones) are deductible to the extent they exceed 10% of the taxpayer’s income This also happens about twice each week. Essentially, Uncle Sam picks up part of the cost of the repairs.

Finally, agents should target advertising to customers shopping today. As more Baby Boomers are shopping around, consider traditional advertising media like direct mail. It might seem out-of-date, but it is experiencing a renaissance right now because Boomers are searching and they still read direct mail.