As we wrote in last month’s Beacon, insurance rates are rising at unprecedented levels. Insurance carriers are trying to respond to market factors that have continued to put pressure on their financial stability. The things that are driving the insurance carrier reaction are hyperinflation on costs to repair or replace cars and buildings, claims frequency, and severe weather conditions that continue to plague the US. In our first editorial we addressed some of the details involved in hyperinflation. In this story I will address severe weather patterns and their effect on your insurance rates.
Severe weather is on the rise. Many have ideas on why that is. I’m not here to discuss the reasons we are seeing more severe weather but to discuss what it means to our insurance rates.
Severe weather along with hyperinflation has made a nasty soup for insurance rates. Insurance carriers use past annual averages in severe weather. The National Centers for Environmental Information is a governmental agency that reports on these events. In the past Insurance carriers planned for 8-9 weather and climate disasters that cost over $1 Billion. According to the National Centers of Environmental Information, the annual average for weather/climate disasters with losses exceeding $1 billion between 1980-2023 is 8.5 events. However, if you squeeze that timeline to just the last five years (2018-2023) the annual average balloons to 20.4 events. In 2023 the US saw twenty-eight separate billion-dollar weather and climate disasters that impacted the United States. Yes, you read that correctly TWENTY-EIGHT weather and climate disasters that impacted the United States. Seven of them, possibly eight, were in states in the Midwest.
A large number of events last year show the insurance carriers need to adjust, or our insurance carriers won’t be around to continue to pay claims. In the States of California and Florida, we are seeing these severe weather pressures playing out in scenarios that hurt policyholders. State Farm announced via a press release dated March 20, 2024, that they are going to non-renew 30,000 homeowners, rental dwelling, and other property insurance policies and non-renew 42,000 commercial apartment policies in California. This means that those policyholders will receive documentation stating they will no longer have insurance on their property when the policy expires. Those policyholders will need to look elsewhere for coverage. Due to the tough conditions for insurance companies in California, that will be a very difficult project for policyholders.
Luckily, here in Indiana and Ohio we aren’t seeing large insurance carriers getting out. Small carriers are making that decision. Here in Indiana, we saw one carrier end the personal lines policy offerings. Secura Insurance Companies announced back in October that they were exiting the Personal Lines Insurance market in all their 13 states. Hopefully, the rate increases that we are experiencing will allow the insurance carriers to stay financially viable in the Midwest and keep competition for your premium dollars strong. Otherwise, we may see similar scenarios here in the Midwest where thousands of policyholders are left with expiring policies.
Insurance companies use all the information they can to design a rate for their policies. A person’s credit score, address, date of birth, weather, building materials costs, and stock market conditions are just a small list of rating factors the insurance companies use in their rate strategy. The goal is to pay overhead expenses to run their insurance company and be able to pay their policyholders when claims happen profitably. Insurance companies are for-profit businesses that get rated for their financial stability. If they continue to post financial losses their financial stability rating from financial rating houses like AM Best gets downgraded. This can cause significant ramifications for the insurance carrier and their clients; Leading to some of the insurance carrier actions we discussed earlier.
Matthew Hatoway
Matthew is a second-generation agency owner. He and his family have been independent agents for over 30 years. Hatoway Insurance Partners, Inc. and Mansfield Insurance Agency continue to help thousands of clients with their insurance needs.
