Have you noticed changes in your insurance renewal terms lately?
Depending on where you are located and your risk profile, you may have received some restrictive policy terms or even non-renewal notices. If you happen to be among the insureds receiving non-renewal notices, it is likely that, among other unfavorable variables, you are located in areas severely impacted by what the industry refers to as climate change risks.
Recent Economic Impact
The NOAA statistics on weather and climate-related disasters recorded from 1980 to 2021 depicted that there were 20 events (CPI adjusted) in 2021 resulting in an economic loss of USD 148 billion. The worst was in 2017 costing USD 354 billion.
The cost of Texas freeze losses and damages alone is estimated to range from USD 10 billion to USD 20 billion. This is expected to be the costliest winter storm in United States history yet.
The record number of wildfires in the United States is averaging USD 13 billion losses annually. In states such as California and Colorado, private insurers are no longer able to write in certain communities due to low insurer capacity and depleted reserves. Prompting government actions. In California, the government has stepped in with legislation and also prohibiting development in certain high-risk and high severity fire zones.
Flooding has been on the rise globally. According to the Federal Emergency Management Agency (FEMA), in the United States, 90% percent of all-natural disasters involve flooding. Coastal areas prone to natural disasters and flooding have seen a reduction in insurer capacity as smaller private insurers exit the market altogether.
Impact on Insurance Companies and Response
Experts including NASA and NOAA have warned that the impact of climate change risk is likely to continue and worsen, meaning more catastrophe events will continue to be inevitable. The unpredictability, severity, and uncertainties surrounding these types of risks are reasons why insurance companies are being more cautious. Both insurance companies and insureds are feeling the strain of these impacts on their finances.
The Deloitte Center for Financial Services’ analysis of the Insurance Regulator State of Climate Risks Survey, indicated that “[a] majority of US state insurance regulators expect all types of insurance companies’ climate change risks to increase over the medium to long term—including physical risks, liability risks, and transition risks.” Therefore, the impact is not relegated to property risks only.
The recent climate change risks, coupled with the Covid-19 pandemic and its related disruptions, geopolitical events, market conditions, and inflationary pressures have all presented challenges to the insurance market and have contributed to how the market responds to Insured’s risk exposures. Insureds have seen shrinking insurance capacity, tighter policy terms, and increased premiums rates as a result.
What Does it Mean for Insured’s Renewals?
Depending on where the insured’s risk exposures are concentrated, particularly in the disaster-prone areas, insureds can expect to see the trend continue in terms of the rate increase on their programs, reduced insurance capacity in certain geographical areas, and adjustments in limits and sub-limits.
It is important to also note that not all insureds will be seeing aggressive changes in their policies. Although premium rates have been on the rise, they are beginning to stabilize.
Some insureds may continue to enjoy favorable policy terms depending on several factors among which include favorable loss history, a better geographical spread of exposure, better risk profile, insurer's risk appetite, and other factors, including market relationship and the involvement of a broker or an agent.
How can Insureds Improve their Insurance Terms?
There are no standard quick fixes, however, there are always actions that insureds can take to position themselves better to improve the terms on their policies. Additionally, insurers are motivated to write business and there is opportunity for growth in the market. Swiss Re estimated that the property market will grow 33% - 41% by 2040 due to climate change risk.
Whether an insured is in a disaster-prone area or a less risky geographical location, they can take the following actions to help improve their insurance policy terms:
Take action early:
Start the renewal or procurement process early. Engage with your insurance broker or agent earlier to strategize. You may have to come up with creative structuring to maximize capacity and improve the policy terms. Meet with underwriters where feasible and necessary and show evidence that you are taking proactive measures to manage your inherent and hazard risks, as well as improving your risk profile.
Shop around with the help of a broker or an agent:
Where necessary you may have to market your program to achieve the maximum capacity if your program is at risk. It may also be important to shop around for better terms on the existing program.
Improve your exposure information:
Comprehensive and better underwriting data will get you better results than incomplete or incomprehensible data would. Underreporting exposure values can hurt you in the long run in the event of a loss. Underwriters may have additional questions regarding your exposure to better understand the risk. Be willing to work with your broker, agent, or underwriter in such situations.
Disaster proof your properties:
Barring any real need to change physical locations, improving protection on the property can improve the policy terms. These improvements may include security and burglary monitoring systems, fire alarm and fire safety measures, water or gas leak detection systems, installation of storm-safe windows, reinforced walls, or impact resistance roofs. Where applicable, consult with the underwriter, agent or broker and take pragmatic measures to implement risk management recommendations and improvements suggested by your underwriters or consultants.
Upgrade and update your property(ies):
Improvement to the property in terms of updating electrical wiring, plumbing, HVAC systems, changing the roofs, and bringing the structure to code can all contribute to better terms and reduced premium rates. Note that improvement and betterment of the property can generate discounts on a policy but it can also increase the value of the property.
Take advantage of other discounts:
Insurance companies often have a variety of discount programs for their customers. These discounts can result from, bundling your homeowner’s insurance, commercial property insurance, or construction insurance with other policies, being a new or first-time homebuyer, a veteran, a teacher, a senior citizen, insuring a new construction, proximity to a fire hydrant, or fire station, making an advance payment, automatic payments or paying the premium in full. Note that each insurer’s discount program may vary marginally from each other. If you have any questions, contact us.
Long-term strategies:
Beyond these actions, insureds can develop long-term risk management strategies to reduce their exposures to these types of climate change risks and or to minimize the impact of unpredictable events.
At Axios Risk Solutions, LLC., we help small and medium-sized enterprises, families and individuals minimize and manage their business risks through tailored risk management strategies and protect their business and assets through a variety of insurance solutions in the market. To request a quote or speak to a broker, call us (404) 780-0272.
Category: #riskmanagement #insurance #climatechangerisk #broker #agent #insights
Author: Sandra Owusu-Fianko
Sandra Owusu-Fianko is the Principal and Risk Advisor at Axios Risk Solutions, LLC. She has extensive experience in the insurance industry and a MS degree in Enterprise Risk Management. She is passionate about finding appropriate risk management and insurance solutions for her clients.
