Just a regular consumer here with Home/auto insurance.
I see a lot of stories here from people getting huge premium spikes or quotes for their home or auto insurance. Especially in places seeing more natural disasters but also just elevated rates everywhere.
My topic of discussion is ultimately, where does this lead us? I just saw a story on NBC of a Texas homeowner in the DFW area seeing their premium skyrocket to $8k+ for the year from about $2.2k. I can't see this being sustainable for consumers living in many of these areas/states so what do you all think this will shake out to be in the end? Will people start being forced to sell but then who would want to buy, especially for those on fixed incomes? More and more people going without insurance (if they legally or contractually can) and risking financial ruin? Or simply a gradual exodus to less disaster prone areas?
Posted by arkangel371
10 Comments
Rate increases seem to go in waves. Then it seems to slow do and inflation normalizes rates to income. Hopefully we see that again now that the need to take rate is going down.
I think the biggest problem is complicated.
California is always going to be California. They will always screw with the market and the market will suffer.
La, fl, tx need to address roof fraud.
Assignment of benefits, basically no one paying for a new roof out of pocket, roving bands of roofers.
Here’s the thing. If you change the laws in Florida to cut down on roving roofers with aob forms you’ll hurt some consumers with legitimate claims.
The news will do a story. People will get upset. They will change the laws again and build in more consumer protections, new scams will be developed.
Human nature is what it is. The cycle will continue.
Depends.
Texas is largely a problem due to hail. Really hard to buy your entire DFW book a new roof every 6 years especially when in nicer parts of DFW that can be 50k a pop.
Hail tends to be an issue for many carriers because of frequency. Basically many individual hail events that fall below your reinsurance attachment point prevents the carrier from being able to transfer a lot of their risk. This is solvable longer term with the development of new coverages or restriction of coverages. Or just changing re-insurance strategy in some cases.
For larger cat perils, hurricane, wildfire etc I am not sure what the answer is. The unfortunate first consequence of climate change will likely not be large swathes of land becoming uninhabitable due to natural disaster. It will be large areas becoming uninhabitable because the cost of insurance will stifle development and business operation in the region.
If you live in a distressed market, worthwhile to consider what your insurance cost could look like in the next ten years and factor that into a home buying decision.
Shop multiple carriers to determine the availability in your area. If only one admitted carrier is offering you a quote understand if that carrier goes under or pulls out of the market you will be forced to seek incredibly expensive coverage.
I believe in the industry correcting in the long term but short term it will continue to be distressed in cat prone areas.
Insurance is simple -( total loss / total insured ) + cost of underwring /claim etc. if losses in economy go up due to extreme weather and expensive repairs Insurande will go up. That’s what’s happening
Personally, I think Home insurance will be the real mover for making people/society to consider building less in high-catastrophe areas (like hurricane-exposed coastline, and wildland-urban interface). Also, possibly a small shift away from single-family housing towards other types of housing where one family doesn’t need to insure a whole property
Also, more people dropping insurance because it’s too expensive.
At a certain point, I think property values will fall in the most disaster prone areas as potential owners realize the combined cost of Property Tax + Insurance.
The reinsurance market will be interesting to watch too. They provide insurance for insurance companies for major catastrophes.
Give a listen to Season 2 of “How We Survive” by Marketplace, especially this episode:
[https://www.marketplace.org/shows/how-we-survive/risky-business/](https://www.marketplace.org/shows/how-we-survive/risky-business/)
Personally, I think tort reform would be hugely beneficial. Cut down on frivolous claims and lawsuits and you will decrease the cost of doing business. Though you can’t control the weather, you can control the leverage that plaintiffs and unscrupulous insureds hold…
This is neither a quick, nor an easy path.
Honestly, I can see the states having to step up more and take on some of the risk. If enough insurers leave states that are not profitable, then there will be no option. Force the states’ hands and make them see first-hand how difficult it is to be in the industry with so many adverse factors against them.
Insurance prices had to go up to cover the increased losses that are due to many factors, such as inflation, climate change and fraud ( yes.. roofers are included in that). In addition to the rate increases some changes have to come in the industry such as actual cash value roof replacement rather than replacement cost. This way when a claim comes in for a 35 year old roof the settlement would be adjusted according to the life of that roof. Also, deductibles have to go up. When I came into the business it was common to see a $50. deductible, than it went to 250, 500, 1000. Deductibles need to get up to 2500 on the low side and 5 k average. Another problem is that insurance companies have not learned from history. One leading carrier goes down in rate, the rest follow causing the same problem to repeat. Hopefully they will be wise enough to stabilize.
One more thing I’ll add. Insurance rates are regulated by the states. Insurance companies have to validate the reasons for a rate increase, in most states over a certain percentage. Ins. depts. have not been granting what is needed so the carriers just took their miniumum and kept doing that. When the ins. depts. realised that there is a problem and they only did so because companies started to pull out of markets like Ca. and Fl. they started allowing the requested increase. So that is one reason for the huge jumps that many have taken.
So, we need to go acv on roofs, higher deductibles and accept climate change.
I think it will depend on the area. Florida really needed adjustments to how the courts were handling claims. The vast majority of lawsuits were occurring in Florida despite only being a fraction of the nations total claims. I expect some places are going to push more towards ACV coverage in areas where people are filling a claim every couple of years. Insurance companies just can’t afford to replace whole neighborhoods roofs every couple of years without skyrocketing rates.
I work in the industry and live in TX. I took a 2% w/h deductible to keep my premiums affordable. We are not able to write new HO business with a lot of big carriers right now.
I think what will happen is the carriers will put cosmetic exclusions in the policies and make older roofs switch to ACV sooner. Right now it is usually at 15 years but they could make it 12 or 10. They will also raise W/H deductibles. This will slow claims payouts and make it easier to deny small hail that doesn’t cause any functional damage and keep from replacing roofs that still have useful life left. They will also push back on supplements requesting extra stuff that the contractor’s use to make more money or cover the HO deductible for the Insured. They could also take code coverage out of the base policy and make it an endorsement that has to be purchased. I know one big carrier that does this already. This would prevent them having to pay for full redecks and add vents or whatever. These are often the supplement items that increase the costs of roof replacements. I am already seeing these things in the market. The carriers are also using cause of loss engineers more to deny roof replacements for wear and tear or old damage that pre existed the date of loss. Another issue is cost for solar panel detaching and resetting is very expensive, and there is no extra premium paid for having them. D&R solar panels can be 30% of the total cost from what i have seen. With solar panels becoming so common, I can see an endorsement for D&R or some kind of add on for this. To summarize, I think carriers will get creative with the policy language to raise the threshold to replace a roof.
As far as auto premiums, that is a whole other issue. So many claimants get attorneys for minor collisions and try to get a big BI payout. I have one where the Insured backed into a claimant’s car at a gas pump, and the claimant is now rep’d and seeking medical damages. If the legal abuse does not stop, we will all just keep paying much higher premiums. I see that carriers are paying $500 for a BI release in non injury claims just to close the door. I am not sure if that was always the practice, but it is now for some carriers. Better to pay a little on each claim rather than have it come back later with soft tissue injury.
What people do not want to accept is that our way of life and teh homes we build are economically unsustainable. There is no solution other than change how we build and where ewe build. That’s the answer. Everything else is pissing in the wind. No one wants to admit that though b/c everything changes once we understand that reality.
Hopefully it is lawmakers and regulators stopping people from building homes in dangerous places and enforcing traffic laws in a serious fashion