Finding Insurance Solutions for Hard-to-Place Risks
Published on Oct 17, 2023webva1
Insurers have been reducing coverages, increasing rates, and in some cases, pulling out of difficult and unprofitable markets. As a result, some policyholders are receiving notices of nonrenewal, and many are having trouble securing the coverage they need at a rate they can afford. This puts business owners, homeowners and the brokers who serve them in a difficult position, but even in this difficult market, there are insurance solutions that can help.
Pressure in the Insurance Market
Insurers have faced rising losses from a number of causes, including natural disasters and cyberattacks. At the same time, inflation has impacted insurance carriers just as it has impacted businesses and individuals. High inflation rates, rising labor costs and supply chain disruption have caused claim costs to increase, resulting in higher costs.
These factors have impacted profitability. AM Best says the U.S. property and casualty insurance sector experienced a net underwriting loss of $26.5 billion in 2022. Even though net earned premiums increased during the year, various factors, including the impact of Hurricane Ian, resulted in significant losses.
Meanwhile, Insurance Journal says global property catastrophe reinsurance rates increased by 37% on average during the renewals on January 1, 2023, which is the biggest year-over-year increase since 1992. Insurance carriers rely on reinsurance to offset catastrophic losses, so the massive increase in reinsurance costs will likely impact their ability to take on risk. This in turn will impact the individuals and businesses who need coverage.
Faced with rising costs and a lack of profitability, some insurers are deciding to stop writing at all in highly catastrophe-exposed areas and even entire states, particularly California and Florida.
In California, both State Farm and Allstate recently announced that they were pulling out of the property market. According to AP News, State Farm cited inflation, a challenging reinsurance market and increasing catastrophe exposures as reasons for deciding not to write commercial or personal property and casualty insurance in California.
Where Does This Leave Policyholders?
As insurers flee high risks, some policyholders are receiving notices of nonrenewal. Additionally, the exit of these insurers means there are fewer options for policyholders looking for coverage, whether it’s first-time coverage or a replacement for a policy that was not renewed. Insurance applicants may also face higher rates, lower limits and more restrictive coverage.
Finding suitable coverage is becoming more challenging, especially for accounts in high-risk areas or with an undesirable claims history.
In some regions, the situation is reaching crisis levels. The Guardian says the lack of property insurance options in Florida is making home ownership unaffordable, and one retiree told the publication that she may have to sell and move out of state if her premiums go up any further.
Creative Coverage Solutions
For the most difficult-to-place accounts, brokers may need to think outside of the box.
- Collaborate with a global partner. Because their underwriting exposure is spread over a broader area, and they don’t write as much business in a given state, global partners may have more flexibility than an insurer with a heavy presence in a given state. In London we have markets who are still able to quote wind in Florida, where they manage their Catastrophe aggregates.
- Consider unconventional insurance alternatives. If there is no coverage available in the traditional insurance market, you may need to look at non-traditional options, including parametric insurance and non-admitted carriers.
- Layer insurance coverages. You may not be able to place all your risks with one carrier and keep rates affordable. Instead, consider layering coverage, using both conventional and unconventional options. For example, you can use a parametric solution to cover some of the wildfire risk and catastrophe risk, and then secure traditional insurance coverage on top of the parametric policy. We have seen success in helping clients secure wildfire and wind coverage in cases where these exposures are excluded by traditional all risk policies. For example, we have been able to provide a wildfire only parametric policy for a California college and other real estate clients that were unable to get wildfire coverage through conventional markets.
- Go for a high deductible. Policyholders may need to take on some of the risk themselves in the form of a high deductible. Remind them that they will need to have the funds to cover the deducible in the case of a claim. We have been seeing a trend of higher retentions to help keep the premium costs manageable for the client and to remove the attritional loss history of the client.
If you’re having trouble placing accounts in the U.S. or the Caribbean, Costero can help you find creative insurance solutions.
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