The Insurance Crisis
MARC SHEPHERD | Senior Risk Manager | Copeland Insurance Agency
THE SHOCK
There is no doubt, the world after COVID-19 is just more expensive. Nowhere is this more evident than opening that bill from your insurance carrier. In one way or another, almost every consumer can count on paying more for insurance this year than ever before, and not just a little bit more.
Increases on home and auto policies routinely exceed 25% more than last year and worse yet, deductibles are also increasing. In some cases, coverage options are decreasing.
In the property world alone we have seen large property policies double and in some cases triple and quadruple. The days of $1,000 deductibles for wind/hail are replaced with deductibles of $2,500 or higher as the new standard. All of this, and more premium!
WHAT HAPPENED
To really understand the challenges we all face, it helps to really understand the problem. Simply put, insurance pays for people, places and things. From injuries from a car accident or in the workplace, to hail or fire damage to a building or house, to damages to your car or theft of your property. Insurance is there to help financially put the pieces back after tragedy strikes.
However, each of those things — from medical bills to car parts — have exploded in price and at almost record rates. Combine this with record-breaking storms and natural disasters and you have the perfect storm.
In 2023, the United States saw 28 separate events that led to losses in excess of one billion dollars. To make things worse, that represented roughly the same number of losses from 2022, only this time the dollar figures were almost 30% higher.
Wind/hail losses have also skyrocketed following the increase in every segment of the building world. The last three years of data are shocking as the average loss size has almost doubled over just two years.
As you can see these numbers represent increases that are unsustainable and crippling to a financial company. Each of these years represent catastrophic losses to companies’ reserves and, more importantly, stockholders’ earnings. At the same time, medical bills continue to skyrocket along with the cost to fix or replace a vehicle is outpacing inflation by a wide margin.
In some cases, replacement parts are not even available, adding even more to the losses suffered.
WHAT IS THE PLAN?
For even small regional insurance companies, the plan starts with their purchases of reinsurance. In short, most insurance companies purchase a catastrophic reinsurance policy to protect their bottom line. Think of it as a huge deductible that caps the losses for the company. The problem is these reinsurance carriers are international, and the world is not fairing any better than the U.S.
For most insurance companies, their year started off with an increase in their prices that further crippled their ability to keep prices or expenses low. Losses in the hundreds of millions have been average and the bleeding must stop.
Companies look to first consolidate their risks. Many companies are limiting new policies, lowering their limits of liability and in some cases removing coverages that once were commonplace. Next, in response to the above wind/hail numbers, we see companies working hard to get out of the roofing business.
They look to raise deductibles, and some place time limits that prevent customers from filing claims from years ago. (This looks to really be a challenge for realtors and house sellers that could learn their house is not sellable without a new roof, yet coverage isn’t available.)
WHAT CAN WE DO?
If ever there was a time to work with your local agents, it’s now.
Insurance companies have done a spectacular job over the past forty years convincing us all that they are in it for us. They are your friend, your neighbor, your savior from the horrible. However, in truth the average insurance company is a large, organized and powerful financial corporation. Each of them answer to a board of directors and stockholders. Your insurance policy is a legal contract and one they intend on honoring, but it is up to you to make sure that contract represents your needs.
Take a moment and learn the coverages you need and what impacts their prices.
Consult with your agent before turning in a small claim and determine the direct impact that might have on your policy going forward.
As companies tighten their guidelines, work to keep your property maintained and a risk the companies want to insure.
Competition never hurts, there are dozens of great insurance agents in the area. Some work with only one highly rated carrier, whereas independent agents might work with dozens of companies.
Meet with them and understand what your options are in the marketplace. As you learn what is possible, or not possible, you are able to make better decisions on how to handle things moving forward.
Lastly, be very careful online. There are some online carriers that will allow you to change or adapt coverages to your detriment. If it looks too good to be true, today it probably is.
THE FUTURE
Pricing will always fluctuate as companies trend in and out of strategies to either grow or shrink their portfolio, and these price hikes might relax over the next couple of years.
We have no reason to believe that deductibles or strict limitations on wind/hail type claims will ever return to prior levels. The time for better understanding, planning and action is now.
