The U.S. property insurance market has softened over the past year, largely due to a flood of capital and a quieter storm season, not necessarily because risks have improved. Tom Kussurelis, president of Arrowhead Programs, described the current state as a clear soft market where rates are falling fast.
He pointed out that some top-tier accounts are seeing rate cuts of 15% to 30%, while average accounts typically experience smaller changes, ranging from a slight drop to a slight increase. Industry experts estimate renewal rates have dropped about 15%. At the same time, many insurers are picking up extra coverage limits at very low costs, reflecting the deep pool of available capital.
The real change comes from the growing amount of money coming into the insurance market from sources like hedge funds and private equity. These investors use advanced tools and structures to turn their funds into insurance risk, and they’re okay with accepting higher losses than in past years because the financial returns still look strong.
Kussurelis also highlighted that the lack of major hurricanes making landfall last year and the distinct impact of California wildfires helped keep loss ratios low. This leftover margin encourages carriers to compete aggressively, pushing rates down and broadening policy terms.
However, this wave of capital clashes with the challenge of insuring increasingly risky properties. Using better modeling, insurers focus coverage on the most resilient and modern buildings, leaving older homes or those in risky spots facing limited options or no coverage at all. This raises questions about the shared responsibility between insurers, consumers, and the government, especially in cases like flood insurance, where many homeowners remain uninsured despite public programs.
High-value homes bring additional challenges. Many homes now are worth millions, yet standard insurance policies and high deductibles don’t align well with their needs. Kussurelis suggests that layered coverage and self-insurance, common in commercial insurance, could work better for personal lines but haven’t been widely adopted yet.
Soft markets also strain underwriting discipline. While Arrowhead Programs insists on maintaining profitability for its carriers, across the wider market the approaches vary. Some new insurers lack the data or experience to price risks properly and might underwrite policies at unsustainably low rates. Kussurelis warned that when losses eventually return, these decisions will come back to haunt the market.
For Arrowhead, the goal remains clear: grow carefully, use available capacity to develop new products, and keep underwriting standards strong. Kussurelis emphasized the importance of balancing growth with accurate pricing and maintaining solid terms to protect both insurers and policyholders as the market shifts.