October 2023 Personal Insurance Market Update

So, why are we writing this article?  First, to help you understand the “why” behind the increased insurance rates, insurance companies leaving states, and what to expect over the next 18 months.  Second, how we can support you during this time, including what you can do to stay protected while keeping your costs controlled.

The US Personal Insurance market has reached a point that is unprecedented in its existence.  As everyone has likely noticed, premiums have been rising at a rapid pace over the past couple of years.  However, unlike previous times where increased rates ultimately improved the company’s financial performance, losses from inflation and storms have become so bad that the insurance companies are doing worse than BEFORE the massive rate increases.

You heard that right, even after the BILLIONS of dollars in increased premiums over the past couple of years, the insurance companies are losing even more money than they were before.  How is this possible?

Inflation factors:  As you will see below, inflation hit such an aggressive rate that it has been almost impossible for insurance companies to raise rates enough to keep up with costs.

• Inflation affects insurance claims at a much heavier rate than the overall inflation numbers shown in the Consumer Price Index.
• It is estimated that in 2022, Insurance companies had to pay out an additional $32 Billion in claims as a direct result of inflation.
• Used car prices increased 40% since Pre-Covid, putting extreme strain on auto insurance companies paying total losses on vehicles.
• Overall Construction Costs increased by 33% due to inflation between 2020-2022. This problem is compounded by the fact insurance companies are charging premiums for much lower valuations than reality, further increasing the damaging impact of these costs.

Weather Factors: The impact from both the frequency and severity of storms, which is partially due to property being more concentrated in weather prone areas, has been significant in the past few years.

• In the first six months of 2023, total insured losses from Severe Convection Storms surpassed $34 Billion in the US. For context, this is more than DOUBLE the ten-year average for the first six months of the year.
• 2022 was a historically bad loss year, however, in 2023 the US home insurance industry has already had roughly the same losses ($24.5 Billion) in the first six months as it did in all of 2022.

How is the Industry Reacting?

The reaction from Insurance Companies in 2023 has been swift and will eventually impact all policyholders across the country.  Some larger companies, such as State Farm and Allstate, announced over the summer that they would no longer write new policies in certain states such as California and Florida.  Other companies, like Kemper Insurance, have decided to stop writing home and auto insurance entirely.

In our office in Georgia, we received notifications from several insurance companies within literally a few weeks of each other, advising us of updated guidelines for writing new policies.  Almost ALL the carriers have now put at least some form of restriction on the type of policies they will write in the state.  Essentially, they are saying that until they figure out how to stop the bleeding then they don’t want to expand their market share.

What does this mean for you and how we can help.

There is no way to sugarcoat that this will be the most challenging period of time we have seen with regard to personal auto and home insurance.  However, we feel strongly about certain things you should strategically do to ride out the market and ensure you have the coverage needed at the time of a loss.  Our company was literally built to handle a time like this.  When things get very challenging and clients need multiple options to ensure they have adequate coverage, our superior knowledge and deeper understanding of the market will help you avoid poor decisions that may be encouraged by other less informed agents.

• Don’t switch insurance companies to save a small amount of money: You must be extremely careful when switching insurance companies at the moment. Some items to consider:
  • If a company is saving you quite a bit of money, have you properly vetted them? I assure you if they are significantly less than the market, they WILL be raising their rates soon to get back in line with the market, IF they are even able to…
  • You WILL see more insurance companies leave the market. It has already happened multiple times in the past few months and the worst is likely ahead of us.  You don’t want to leave a solid company for one on the ropes just to save a few bucks, it could cost you much more at the time of loss!
  • Some companies are looking for ways to cancel policies even after they write the policy. One of the big “gotcha’s” right now is roof age and they are using drones to check the conditions.  If you move companies and then get cancelled for an older roof, it may be difficult to go back to your old carrier or any alternative as many are adopting the same guidelines.
• Self-Insure when possible: Some companies are not accepting new policies for situations as small as a simple glass claim!
  • If you can afford to absorb the loss financially, do so. We have seen many cases where a small claim is turned in only to be compounded by a larger unforeseen claim shortly after.  Almost EVERY single home carrier will not accept a new policy that has two claims in the past three years….you must protect your insurability.
  • Even super small claims such as a glass claim have been flagging the new business restriction guidelines in the past few months. Once again, anything you can afford to self-insure would be in your best interest until the market stabilizes.
• Protect your home from future Damage: There are a number of technologies and methods which can help prevent future claims and also make you more favorable in the eyes of the insurance companies.
  • Water Loss Detection and Shutoff: Given that internal water damage is one of the leading types of property losses, installing an automatic shutoff sensor such as Flo by Moen or Streamlabs can significantly improve your loss prevention, and get an insurance credit!
  • Tree inspection and removal: As you can imagine, fallen trees are a huge issue especially within our “city in a forest”. Forgetting about insurance entirely, one of the most impactful things you can do from a life safety standpoint is to have your trees inspected at least every two years by a certified arborist.

Although these are challenging times, they will eventually pass.  Our unwavering goal is to help you navigate this time period without making a poor decision that could lead to greater consequences down the road.  Please understand that most insurance contracts out there have more exclusions or limitations than the ones we typically use.  Even if you are saving $500 a year it is important to understand there are likely multiple ways that contract could short you tens of thousands of dollars at the time of a loss.  We are always available to deep dive on your specific situation and will do all we can to come up with the best solution to balance cost and protection!

• https://www.wsj.com/articles/inflation-means-businesses-face-insurance-woes-when-rebuilding-2135e90f
• https://www.swissre.com/press-release/Severe-thunderstorms-account-for-up-to-70-of-all-insured-natural-catastrophe-losses-in-first-half-of-2023-Swiss-Re-Institute-estimates/cea79f3c-6486-41a8-9c6e-09df260efe30
• https://mfsconstruction.com/news/2023/how-does-inflation-affect-the-construction-industry