SECURING INSURANCE
Insurance In Flux :
Navigating The Challenges Of The Current Market
The ability to secure insurance has historically been a rocksolid safety net for businesses in the event of unforeseen loss . However , in recent times , the insurance market has been in flux , and insurers are being confronted with unforeseen challenges . According to a recent industry report , current market conditions will likely continue for the remainder of the year .
This is due to several factors :
1 . Weather events / climate change : severe weather conditions combined with natural disasters like flooding , wildfires , and windstorms .
2 . Property valuations : an increased emphasis by carriers on property owners and operators to utilize accurate replacement cost valuations .
3 . Market capacity : a decreased appetite among carriers for certain properties .
4 . Rising building cost : The prices of nearly everything , from construction materials to labor , are on the rise .
CLIMATE CHANGE / SEVERE WEATHER EVENTS
Insurance rates have been rising due to the significant impact climate change has had on the sector . Insurers face greater financial risks from payouts and claims related to extreme weather disasters as the climate continues to change . Climate change makes it difficult for insurers to plan for future financial losses due to factors like rising sea levels , warmer temperatures , more frequent storms , and longer wildfire seasons .
According to a recent report , weather event ( floods , storms , nor ' easters ...) related claims for the first half of 2023 totaled over $ 34 billion in the U . S . alone .
This is almost twice as much as the average for the past 10 years over the same period .
PROPERTY VALUATION
One of the most noticeable shifts is that insurance firms have been compelled to reevaluate the cost of rebuilding a damaged or destroyed property .
During softer market years , most property insurers did not emphasize the importance of updated and accurate property replacement costs . What has resulted is that many property portfolios are underinsured on a cost-per-squarefoot basis . A study conducted by McKinsey revealed that in 2022 , there was a $ 32 billion increase in how much insurers paid over initial expectations .
According to a Q1 2023 status of the market analysis by national insurance wholesaler Amwins , carriers estimate that the insurance-to-value ratio for real estate property portfolios is off by 30 percent or more . Property owners have benefited from this in softer markets . Property premium is a simple math equation ; a rate is applied to every $ 100 in total insurable value . Therefore , a lower property valuation results in a lower property premium due to the lower premium basis . This is results in carrier offering higher premiums and less favorable terms .
RISING COSTS & MARKET CAPACITY
The cost of construction has increased . Moreover , during periods of rebuild and repair , there is often an additional component to the claim regarding business interruption or loss of revenue . Carriers are increasing their focus on correcting assets ’ replacement costs and accurately reporting business income figures accordingly .
Additionally , many carriers are dropping certain properties due to high-risk payouts , leaving property owners with few options for coverage . Further , deductibles have increased to nearly unmanageable sums .
WHAT CAN YOU DO ?
Though there isn ’ t much that can be done to control some of the factors mentioned in this article , it is crucial that all Community Associations review their deductible structure and coverage limits as well as be proactive in implementing risk management strategies to prevent losses . In the current market , losses will inevitably cause premiums to increase and possibly cause a carrier to non-renew . If you take preventative measures in your own hands and lean on your management professional and insurance advisors , you will be better equipped to navigate the challenges of the current market . +
BY : DAVID VELASCO , EBP , ADVISOR , JGS INSURANCE , A BALDWIN RISK PARTNER
David Velasco has worked in the habitational industry for close to a decade and thrives on connecting people . Solving problems for clients and connections is his daily motivation . Joining the JGS team is a natural progression of his path forward . Serving on the committees of several organizations , he is a recognized industry professional , providing education through his webinar series , public speaking engagements , and social media presence .
13