Insurance 101: Increasing Insurance Premiums

The trend of increasing insurance premiums is not a local, regional, or state-wide issue – it is a national issue. Rising insurance premiums is also not relegated to only personal, commercial, or group benefits coverages. In basic economics, when a good or service goes up in demand, and supply becomes limited, that good or service has a price point that will most certainly increase.

Insurance underwriting is a way for insurance companies to quantify risks, and the likelihood of loss. Whether you live in a region prone to natural disasters -or not, storm related events are becoming more common, more significant, and entering into new and developing regions that are not accustomed to the severity of damage caused. Every property insurance company has statistical and real data on loss to project probability of losses and historical data outlying what risks are less or more in any given year.

So, for policy holders that historically do not file claims, which minimize smaller repairs and maintain their properties, autos, and other assets, and that maintain a strong personal credit standing --- why do insurance premiums unfairly impact them?

The answer is the fundamental of insurance:?a service of protection is granted on an aggregate basis for policy holders that pay a premium to protect listed assets in the event of loss. The insurance carrier bases premiums on the probability of loss, and the likelihood for certain risks to be considered catastrophic (IE: CAT losses such as Hurricanes, Floods, Tornados, Earthquakes, Wildfires, Mudslides, Hail events, Large-scale Freezing events, and many others). Re-Insurance is factored in to back the insurance companies in the event that losses exceed premiums or reserves, and that also adds to the bottom line when premiums are decided upon.

·????????Used car prices are up 13% vs. 2021.

·????????Domestic auto inventories are down 52% vs. 2021.

·????????Parts and equipment prices are up 14% vs. 2021.

·????????Asphalt shingle cost are up 17% vs. 2021.

·????????Maintenance and repair of properties is up 9% vs. 2021.

·????????The largest insurance carrier in the US. Posted a $3.22Billion underwriting loss in Q2 2022

·????????A major insurance auto carrier posted a $487M underwriting loss in Q2 2022

Loss ratios in the triple digits mean that insurance companies can not remain profitable and insurance premiums must increase to keep up with the rising losses and inflationary increases.

In recent years, several factors are placing heightened pressure on the profitability of the insurance portfolios in Texas and other CAT-prone states. Meaningful loss factors in Texas worth highlighting include:

?Significant loss events/ factors in Texas specifically

·????????Hurricane Harvey – 2017

·????????Dallas Tornados – 2019

·????????Winter Storm Uri – 2021

·????????Winter Storm Elliot – 2022

·????????Continued high frequency of Wind & Hail events.

·????????Increase in wildfire events across parts of Central and West Texas

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Market and climate uncertainty has compounded the problem.

·????????Inflationary factors leading to higher rebuild costs.

·????????Ability for predictive models to effectively anticipate novel future loss events (ex: Winter Storm Uri)

·????????Meaningful increase in reinsurance costs

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National and International issues

·????????Supply chain shortages increase demand; prices rise, and lead times are delayed.

·????????Materials are in shorter supply, and companies and contractors have to balance cost and profits to balance the work to be performed.

·????????Vehicles are in higher demand and in limited supply; growing essential technologies such as semiconductor chips have been woefully short in supply unable to keep up with demand.

·????????Vehicle parts become more expensive, labor rates increase, the cost of purchasing or servicing this industry goes up, and costs insurance companies more on repairs and replacement of those vehicles.

·????????Residential and commercial real estate have seen record highs, and this impacts the insurance required to replace an insured building or property at the higher cost of labor & materials.

·????????When the residential real estate market is booming, there are less properties, and so demand builds, and drives up purchase prices, and by default this impacts the insurability of those assets through insurance replacement cost values.

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So, what can we do as consumers to ensure that we are knowledgeable and savvy enough to make the right insurance decisions based upon necessity, need and quality?

1.?????Discuss your insurance program with your insurance broker or agent.

2.?????Outline your most important assets, and the best way to protect them.

3.?????Objectively evaluate your level of risk on the deductibles that you elect as they can sometimes balance out the premium without accepting a lesser quality coverage or product.

4.?????Understand that ‘cheap’ insurance never lasts; cheap coverage becomes expensive when you have a claim, and there is no servicing, accountability, advocacy, or empathy involved in the claims process. You get what you pay for, like all important advisory services.

5.?????Establish a long-term goal of following your insurance premiums, but also knowing your insurable policy limits, deductibles and important policy endorsements that may be ‘new’ to your policy offerings.

6.?????Maintain good personal credit.

7.?????Avoid claims frequency – especially the small claims that do not involve a second party. When you can self-insure minor things like a door dent, chipped windshield, or towing service – you are better served not having a lengthy claims history.

8.?????If you have young drivers in the household, outline your guidelines on tickets, accidents, and distracted driving.

9.?????Know what policy discounts or credits may be available to you, and see if you qualify for credits not already accounted for on your policies.

10.?Eliminate gaps and redundancies in your coverage by having an in-depth review with your agent or broker.

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We can help.

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Jason M. Pond, CAPI, CPRIA - Personal Risk Management & Shareholder

972-715-8703 – W??/???972-342-8645 – C / [email protected]

WWW.SWINGLECOLLINS.COM