As we anticipate The State of Union address shortly, I thought a summary of the insurance industry might be of interest, albeit a bit sobering as we begin a new year.

As we all know, the nature of the insurance concept is that the risk of loss is shared by policyholders so that those without losses subsidize those who sustain losses, no matter how small or large the claim payments. So, in other words, we are all in it together. Last year was a year that had substantial losses not only throughout the year, but in many different places throughout the country and the world. Preliminary estimates for global losses resulting from insured natural and man-made disasters in 2017 are more than $130 billion, the third highest since comprehensive records began in 1970. What was already a busy catastrophe year from February through June – there were five separate severe thunderstorm events in the USA and Caribbean with insured losses more than $1 billion each – ramped up in the second half of the year, due primarily to the three hurricanes – Harvey, Irma and Maria – and wildfires in California. Year-end estimates more than doubled insured losses in 2016, and were well above the previous 10-year annual average of $58 billion. In our industry, we say that having frequency or severity can be expected from time to time, but when you have both, it’s not been a good year!

So, what should you expect in 2018? Companies like Moody’s has given the insurance industry a stable outlook for 2018, despite the heavy catastrophe year. Why, you might ask? Some notable factors for the coming year:

• Higher reinsurance rates due to more catastrophes that will be passed onto insurance companies, and therefore to policyholders.
• Higher building costs in a tight construction labor market will increase values and therefore, rates.
• Policyholders in catastrophe-prone areas are expected to see significant rate increases as demand increases while insurers willing to offer coverage decreases.
• Auto insurance continues to rise in response to increasing accident frequency from distracted driving and the trends of more costly repairs due to technology in the majority of cars that are more expensive to restore after crashes.
• Increased employee-related and cyber-related events that are changing the frequency and severity of financial losses and will require re-examining the pricing models for more types of businesses.
• The federal government’s desire for less subsidy of federal programs like flood insurance that will continue to shift more cost to property owners.
• While the country has been in a sustained low interest rate climate, rates are expected to increase slightly in 2018, that may add a bit to investment income for insurers.

While some of these factors point to potentially higher insurance costs, competition remains significant and the insurance industry like many others, continues to be committed to offering the finest combination of coverage for its policyholders at the most competitive price. Companies and agents continue to invest heavily in education, technology, and understanding and evaluating Big Data, artificial intelligence and the myriad of underwriting, administrative and claims data that are all aimed at top-notch advice and more precise pricing like never before. Those who pay bills promptly, take risk management measures to better protect themselves, their properties and businesses, and have fewer claims will pay lower premiums than others. More sophisticated data evaluation has and will continue to allow insurance company underwriters to follow relevant factors throughout the cycle of client relationships. So, while some factors like weather and repair costs are outside of your control, things like credit, payment history, administrative requirements and paid claims, as well as the risk factors of what you insure will matter more and more in premium determination in the future.

We at Magis Insurance believe that our advice, program design and management can help position you to best protect what you have in a way that meets your goals today and the evolving marketplace of tomorrow. Please utilize our industry, coverage and pricing knowledge. Engage us about what you do and what you own so your assets are best protected. We always welcome a call, meeting or email so that you understand and are comfortable with your risk management and insurance program!