For individuals and families seeking private insurance for their home, property and valuable assets, industry experts say the effect of the current hard market may get worse before it gets better. More stringent underwriting guidelines, lower eligibility rates, increasing non-renewal notices, and declining capacity are all making it extremely difficult for individual insureds to acquire and afford the coverage they need.
Mirroring trends that are occurring in the commercial risk insurance market, private risk insurers are also entrenched in a hard market. Suffering record losses from social inflation and billion-dollar weather events, insurers are doing whatever is necessary to better manage growing exposure to risk. Raising premiums and deductibles. Reducing capacity. And even exiting geographic markets in some cases. Unfortunately, these trends are making it difficult for individuals to get and afford the coverage they need to protect their homes, vehicles, and valuable assets.
According to a 2022 EY report, insurance priorities for individual consumers are evolving. As a result of coming through the pandemic, they have a renewed focus on financial protection, more interest in obtaining affordable insurance alternatives, and a desire for customized coverages that fit their needs.
Here are the key factors to note that are affecting the private risk insurance market:
- Weather & Wildfires
- Widespread Fraud
- Soaring Inflation
- Valuable Articles
Current Trends, Challenges and Opportunities for Private Risk
Weather & Wildfires
The impact of incredible losses from recent wildfires across the western U.S. are causing insurers to not only stiffen eligibility requirements to buy or renew coverage, but to completely retreat from certain markets, like California, Colorado, and Washington, where wildfire destruction has intensified in recent years.
Rising temperatures due to climate change are driving a variety of weather-related events and stretching capacity for insurers. Whether it’s floods, hurricanes, or tornadoes, events seem to be getting worse – increasing in number, impacting more areas, putting more people in harm’s way, and causing greater damage. And it’s getting harder for forecasting models to predict. Now, some insurers are “underwater”. Others are drastically modifying guidelines to scale back exposure. Both of these realities are forcing homeowners to pay exorbitant premiums, leaving them underinsured in order to manage rising costs or without insurance at all.
Opportunities: Be proactive taking preventive measures to protect your assets so insurers are more likely to positively view your risk profile. Keep up with home maintenance, trim back large trees, and replace shingle roofs that are more than 10 or 15 years old. Consider installing risk mitigation controls, such as a surveillance system, storm shutters, water shut off devices, and electrical system monitors.
The fallout from frequent insurance fraud, resulting from predatory sales practices particularly in the state of Florida, is driving up claims and leaving insurance companies on the hook to pay for expensive and unnecessary services and/or incur legal costs to fight or settle the claims. To stymie continued losses, insurers have resorted to cancelling policies and leaving this geographic market at an alarming rate. The result is more stress on homeowners to secure coverage and more pressure on agents and brokers to help them find it at a price they can afford.
Opportunities: Implement cyber security best practices for your online accounts and devices, as cyberattacks continue to increase in frequency and severity. And be sure to review your insurance policies at least once a year to make sure the coverage still matches your need.
Just as with food, gas, and almost everything else, individuals are also likely to pay more for insurance this year. For example, due to supply chain issues for cars and car parts, both new and used cars are increasing in value. So even small accidents are carrying huge price tags to fix damage.
According to the U.S. Bureau of Labor Statistics, prices for motor vehicle parts and equipment are 125.3% higher today than they were in 1977. And so far, 2022 has seen the third-largest price increase in this sector in more than 40 years. Source: https://www.in2013dollars.com/Motor-vehicle-parts-and-equipment/price-inflation
Opportunities: Work with a broker who has a broad background that includes auto insurance and will share information with you about the benefits of use-based premiums, help close the knowledge gap, and may help you save a little money at this time.
At this time, several trends are impacting this sector. Increasing stock market valuations, soaring property values, and rising savings rates during the pandemic drove an uptick in personal wealth and spurred purchases of art and jewelry, as individuals had money to spend and added to their private collections.
Opportunities: Review your existing insurance coverage to make sure you understand what’s covered under your homeowner’s policy and review the replacement cost value for any art collections or valuable articles. If appraisals for certain items are more than a year or two old, it’s wise to get a current appraisal, and adjust coverages as needed.
This material has been prepared for informational purposes only. BRP Group, Inc. and its affiliates, do not provide tax, legal or accounting advice. Please consult with your own tax, legal or accounting professionals before engaging in any transaction.
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