Why we have large property premium increases and how to manage them

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From supply chain issues to abnormal weather events, agents need to work more collaboratively with their insureds to ensure they have the right coverage — and understand what protection it offers

AS THE property market deals with large premium increases year over year, there are certain factors that have an influence. “Part of these increases is directly tied to cost of materials needed to construct or repair buildings,” says Jason Jones, SVP, Risk Management at REInsurePro. “This is a result of supply chain issues that are still lingering since COVID. We’ve had to pivot just to figure out what those changes were in order to even consider the most effective method of restoring regular access to building materials.” Elsewhere, the threat of climate change and increased abnormal weather events have also played an integral part in how the market has shifted. “There are natural disasters, such as hurricanes, that are very problematic and logistical nightmares to properly adjudicate. But even more common events like hail have caused significant loss in all parts of the country and are creating an additional drain on already limited resources,” Jones says.

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“It’s important that they know what they’re selling. It is also necessary to be clear with their client about what is covered to prompt them to ask additional questions about their insurance products”

Jason Jones, REInsurePro

When adjusting for material cost increases and erratic weather, carriers begun to realize that they were no longer profitable in certain areas. “This is why you see prominent companies drop out of these regions, because actuarial inquiries have shown that continuing business was not sustainable in the long term,” Jones says. Many carriers had to make the difficult decision to either drop out completely or increase their premiums or deductibles in order to stay afloat. However, it is predicted that carriers have made the

appropriate increases to adapt to these volatile times so that market increases will stay dormant for the time being. “Some of the increases were at 300 percent,” Jones says. “But it’s just not reasonable to continue to put people in that position, especially if they are considering going without insurance because of its high costs.”

Considering Florida has been a traditional hotspot for hurricane activity, Jones expects that this will continue into 2024. “The whole of the Gulf Coast area, including North and South Carolina, are forecasted to have a lot warmer weather this year,” Jones says. Then there is what experts call “Hail Alley”, which is prone to tornadic activity that can create a lot of strain for carriers and insureds alike. This region typically includes Texas, Oklahoma, Kansas, Colorado, Nebraska, North Dakota, Minnesota, Missouri, and Arkansas. Additionally, wildfires will continue to wreak havoc since a lot of America’s topography is covered in forested area, coupled alongside the expected rise in temperatures. “California is obviously a big player there,” Jones says. “But then you have smaller parts of Nevada and Arizona, moving over east into Texas, some parts of Oklahoma, and then a little bit in New Mexico.” Lastly, one emerging threat to keep an eye on is flooding, especially in states like Maryland, New York, New Jersey, and up through Maine. “In general you’re going to experience a lot of weather events, and with the way these patterns are being forecasted, insurers and their clients are going to experience wildfire in pockets, while flood, hail, and hurricanes will pose certain difficulties well into 2025,” Jones says.

When looking to help safeguard an insured’s property from a loss due to a weather event, Jones stresses how important maintenance is. “There are homes that could have survived the heaviest of hailstorms, but their roofs weren’t properly shingled to withstand that threat,” Jones says. “Similarly, some insureds may not have cleaned out their gutters in advance of heavy rain, leading to flooded areas of the house that could have been easily avoided.” Beyond maintenance, it is crucial that insureds are equipped with extra coverage that could have an impact on their claims following a storm.

Jones noted that with hurricanes, the wind may not always provide the most damage to a property, but the accompanying storm surge can bring about flooding that may not be covered in a standard property policy. “Paying $3,000 a year in premium for flood coverage could save an insured on potential losses of over $50,000 if the integrity of the building was significantly damaged,” he says. Lastly, an agent can work with a client to better understand the difference between ACV and RCV coverages, as well as what deductible is most feasible for them. “A client doesn’t want to bite off more than they can chew,” Jones says. “Some clients are savvy enough to understand that if they’ve just purchased a home and it's brand new, ACV coverage is appropriate because the depreciation will be negligible the first couple of years. Recognizing your financial capacity to manage a deductible or self-insure a loss is really important.”

Weather events to look out for this year

How agents can help insureds boost their risk profile

Published April 22, 2024

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“If you don’t fully understand what your coverage includes, you’re at the mercy of what you signed up for, which might not be enough”

Jason Jones, REInsurePro

168 tornadoes, in January, triple the historical average for the month

Category 3 Hurricane Idalia slammed Florida

Megadrought for California and other parts of the West, called the most significant in 1,200 years of human history, ended with a series of nine atmospheric rivers that caused 80% of average seasonal snowpack to fall in three weeks

24 twisters across the Southeast, including an EF4 across Mississippi, in March

122 twisters across multiple states, including large portions of the Midwest, South, and East US, March 31 and April 1

Canada’s worst wildfire season on record — an estimated 18.4 million hectares burned — blanketed US cities in smoke, reaching as far south as Alabama

Deadliest US wildfire in over a century swept through Maui, Hawaii

Hurricane Lee caused dangerous surf and rip currents along the Atlantic Coast

Six record-breaking months and two seasons — summer and autumn — made 2023 the hottest year ever recorded

Shift to El Niño following three years of La Niña could evolve into one of the strongest El Niño events observed over the past 75 years

Source: The top 10 most impactful weather events of 2023 (accuweather.com)

Top US catastrophic weather events, 2023

From an insurance product perspective, REInsurePro offers two ancillary solutions that agents can find very helpful when trying to provide extra coverage for clients who are at risk of experiencing a weather event. The first is flood coverage, which manages flood and storm surge losses. These events are common with hurricanes and other severe weather events. Rising water from rivers, larger bodies or water, and heavy sustained rainfall could cause damage not covered on a standard property policy.

REInsurePro is helping agents best serve their clients

“Flood coverage provides another layer of protection for unexpected weather events that bring an overwhelming amount of water that could negatively affect a given property,” Jones says. Secondly, the company’s Tenant Protector Plan (TPP) provides coverage for Sewer and Drain Backup. If a client has a Sewer and Drain Backup loss at the insured property, there is a potential for some measure of coverage for this loss, Jones said, explaining that often, widespread heavy rains or an influx of water associated with large weather events create challenges for local drainage systems. Sewer and Drain Backups are not automatically covered on the standard property coverage and could prove to be useful in the event that type of loss occurs. It also covers a few other things, like a limited amount of skipped rent, while also managing some elements of tenant liability if they were responsible for these losses. Elsewhere, REInsurePro is focused on educating its agents about the current risk landscape and have them better understand the products they are recommending to clients. “It’s important that they know what they’re selling. It is also necessary to be clear with their client on what is covered to prompt them to ask additional questions about their insurance products. It cuts down a lot of the challenges and misunderstandings when there may be a claim,” Jones says. “If you don’t fully understand what your coverage includes, you’re at the mercy of what you signed up for, which might not be enough. We’re always here to answer those questions or give some feedback to give clients confidence in the insurance they rely on.”

Average increase of 4% in 2023

Costs are set to increase by 3-6% in 2024

Spikes vary between major cities:

Chicago faces 3.5% increase this year, while Phoenix is expected to see a 6% rise

US construction costs on the rise

Source: Construction costs expected to increase as much as 6% this year | GlobeSt, by Currie & Brown