For the past several years, we have seen and heard about wildfires not only in the western US but also in central FL, tornadoes not just in the traditional tornado alley but from the Midwest to Mid-Atlantic and northeastern states, not to mention temperature swings that resulted in extreme freezes in TX last year and losses of almost $20 billion.  Every one of these weather events have added to other predictable losses of fire, theft, water damage and lawsuits paid by insurers.  2021 proved to be the second-costliest ever for the insurance sector.  Losses from Hurricane Ida alone totaled more than $65 billion in more than a dozen states, 55% of which were fully insured.   

Why should you care?  The nature of insurance is that losses are spread among policyholders to cover costs.  These costs include not only their expenses to issues and service policies and the claims they pay directly, but also the costs of reinsurance, which is insurance purchased by insurance companies that reimburses them when losses hit a certain limit to avoid financial failure. In other words, premiums charged increase to cover the predicted trends of losses,  

At the same time we have encountered record cumulative weather-related losses, we have seen increased costs of materials and labor due to supply and demand and the pandemic. Loss cost trends in the second half of last year and into 2022 are increasing every few months at higher inflation rates than we have seen annually for many years. Costs and availability of rental cars, computer components, construction materials as well as labor are having significant impacts and some of you have encountered these effects.  

So, what can you expect as a result of weather, cost increases and labor shortages?

• Higher inflation rates on policies at renewal so that property values keep pace so you have sufficient limits to cover serious claims.
• Higher base rates due to increased loss trends and reinsurance costs. 
• In some areas, there may be much more limited availability of coverage.  Insurers are reviewing underwriting criteria for new risks as well as existing policies offered in coastal, wildfire-prone and severe weather areas against their costs.  Insurance departments in some states have been reluctant to approve rate increases at acceptable levels or at all, and insurers are deciding to jettison some of this business. 
• In some areas, the breath of coverage may be changed on policies to limit losses – we have been seeing that in FL by some insurers for a number of years and it will be much more prevalent in other areas.  

What can you do to maximize credits and minimize pricing changes?

• Consider loss mitigation upgrades that might provide credits: alarm system, generators, water shut-off devices, low temperature alarms in cold weather states, fire ember vents and gutter guards in wildfire areas. 
• Like so many financially underwritten products, insurers use “insurance scores” as a factor in most states for personal and increasingly business insurance. Factors like credit histories as well as premium payment histories, electronic and automatic payment options all improve their administrative costs and those savings are often reflected in base premiums based on these scores.
• And, of course, loss histories are captured on readily available loss reports and affect pricing.  We ask that you discuss the size and types of losses before reporting them directly to insurers as small losses can have as much of an impact on pricing and availability if there are repeated trends.      

If you are anticipating purchasing new properties or adding any new ventures, you should consider potential insurance costs as an important factor. We at Magis Insurance Group will be monitoring your programs and the marketplace, and are available to discuss your situation at any time.