Homeowners insurance profitability has improved following underwriting responses in many global regions, despite growing catastrophe risks, Moody’s Ratings says.

Insurers have faced elevated loss costs over the past five years, driven by inflation, rising reinsurance expenses and increased exposure in disaster-prone regions.

“These pressures have prompted corrective underwriting actions – most notably rate increases, tighter policy terms and refined risk selection – though the pace and effectiveness of these measures vary across jurisdictions because of regulatory constraints and market structures,” the ratings agency says in a report.

Insurers are absorbing more risk as reinsurers raise attachment points, with those using data analytics and predictive modelling at a competitive advantage. In some regions, consumers are also taking on more of the risk.  

Moody’s says insurers are integrating historical loss data, geospatial analytics and climate scenarios to better understand threats, predictive analytics are improving claims forecasting and fraud detection, and aerial imagery and AI can help assess natural disaster vulnerability.

As insurers refine risk selection to maintain profitability, more consumers could face availability and affordability issues, it notes, with some countries and US states having established government or industry-backed (re)insurers of last resort.

“As climate conditions evolve, addressing the protection gap will likely require a mix of public-private partnerships and government sponsored (re)insurers to ensure adequate insurance availability in high-risk areas.”

In Australia, average flood costs over the past five years have been more than $2 billion – a significant increase on the past 20 years.

While insurers’ pricing reflects an increase in reinsurance costs, affordability and underinsurance challenges are intensifying, particularly in flood-prone areas, and insurers are urging government investment in resilience and adaptation, the report says.

In the UK, the number of properties ceded to Flood Re each year has increased almost threefold since 2017. About 30% of properties ceded to the pool this year were not previously involved.

“Interestingly, the pool has run profitably since inception, although profitability has been decreasing in recent years and gross exposure for a one-in-200 event has risen to £2.1 billion ($4.3 billion) from £669 million ($1.4 billion),” Moody’s says.

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