In a Tightening Insurance Market, Details Matter

In the U.S., climate change is having negative effects from coast to coast. Scientists, government agencies and the public are beginning to feel firsthand the perils of a warming atmosphere and rising sea levels. From an insurance perspective, claims are at historical highs due to losses caused by stronger, slower hurricanes on the East Coast, wind and hail in the Midwest, and wildfires out West.

According to Chubb’s “Market Trends and 2019 Opportunities” report, “In the last 17 years, the total number of natural events has doubled. Trends suggest continued growth should be expected.” Natural events include tropical cyclones, winter storms, convective storms (or hurricanes), flood and heat wave/ wildfire events.

The spike in claims is causing insurers to raise rates across the board. And in some places, they’re refusing to write coverage at all. For example, data released last month shows that insurers dropped 350,000 home insurance policies in California in the wake of the devastating wildfires of 2018.

The tightening homeowner’s insurance market, especially in vulnerable states like California and Florida, is bad news for private clients, who tend to own multiple homes, cars, fine art, collections and luxury goods that add up to large portfolios of exposure.

What’s Causing Rate Increases?

Three consecutive years of damaging Atlantic hurricane seasons are partly to blame for driving up premiums. The worst wildfires in California history have tightened the market as well. In some High-Risk Fire Zones like Mill Valley, you might be lucky to get a policy renewed at a rate of 5x what you paid the year before, if you can get an insurer to cover you at all.

Water-related losses account for the most claims in the Midwest. Wind and hail claims have tripled there in last three years. In Illinois, high net-worth insurance companies have taken a 25% rate increase due to water claims.

And while natural disasters are changing risk models, other factors are driving up the costs of claims, too. High-end technology is more expensive to repair or replace. Ten or 15 years ago, if someone crashed a car, it was a just car, but today’s cars are like computers on wheels. The repair and technology involved in replacing luxury vehicles has skyrocketed. The same is true of the technology inside today’s high-end appliances that are found in luxury homes. For example, the replacement cost of a top-of-the-line Sub-Zero refrigerator has gone up 130% between 2000 and 2018.

Additionally, reconstruction costs are going up in all states, both in cost of materials to rebuild homes as well as the cost and availability of labor.

Take a Full Assessment of Your Policies

So, is there anything you can do in the current marketplace to contain your insurance rates? Taking a full assessment of your policies and scrutinizing the language for any gaps in coverage or inaccuracies can sometimes lead to better coverage, while controlling costs. 

For example, we met with a new private client who owns multiple properties in New York City. One of the properties had recently been changed from a personal home to a rental property. However, since the policy didn’t reflect the change, the client was overpaying by $29K.

In other cases, we’ve assessed portfolios and found people were underinsured because their broker hadn’t checked in on the status of a new construction or renovation project. As insurance brokers find themselves working harder to secure coverage for increasingly hard-to-insure properties, they often don’t have the capacity to give private clients the service they need.

With the evolving risks from climate change and increased exposure of replacement costs, it’s never been more important to work with a risk expert who has access to and leverage in the insurance marketplace.

Want to learn more?

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Connect with the Risk Strategies Private Client team at privateclient@risk-strategies.com.

Email me directly at sleon@risk-strategies.com.