Could Maui fires make your insurance more expensive?

When the Washington Examiner asked Jerry Theodorou, director of the R Street Institute’s Finance, Insurance, and Trade Policy Program, if Maui’s fires would lead to higher insurance premiums, his answer was conditional.

“It depends on the magnitude of losses in Q3 and Q4,” he said. “Through the first half of 2023, insured U.S. natural catastrophe losses were under $10 billion, which is below the average in recent years. The quarter with the most losses is historically Q3, and we are still in the middle of Q3.”

Theodorou admitted, “The Hawaii fire and Tropical Storm Harold in Texas are major loss events,” but insisted, “whether there will be rising rates on homeowner insurance policy renewals depends on how the remainder of the year shapes up.”

He spelled out two scenarios: “If the total natural catastrophe loss for the year exceeds the long-term average, there will likely be rate increases, with the Hawaii fire a contributor, but if we have a light September (and end of August) and Q4, it is not a foregone conclusion that there will be rising rates broadly.”

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“Reinsurance costs are established shortly in advance of Dec. 31, which is when reinsurance treaties renew,” R Street’s Theodorou said. “It is too early to know what will be the result of the Dec. 31/Jan. 1 reinsurance renewal negotiation. If the catastrophe load proves light for 2023, reinsurance rates may go down. But if reinsurers are hit by large, higher than average losses, reinsurance cost may rise, with the rise passed on to primary insurers.”