Premiums are up, but at what cost?
Insurance is stocked with smart people who must forge a fresh path without zapping policyholder financial security.
As we were closing the August 2023 issue of NU Property & Casualty magazine, local news reports in my town highlighted several stories about dramatically higher homeowners and condo insurance premiums.
In one case, a condominium development where residents survived the brutal Marshall Fire in 2021 and are just beginning to rebuild, faced a situation in which their insurer refused to renew, forcing the association to piecemeal together coverage from several carriers and pay premiums that are 400% higher than the cost of their previous coverage.
That story mirrors a situation in California that we covered on PropertyCasualty360.com earlier this year. We wrote about steps leaders in that state are taking to try and curb skyrocketing condo insurance rates.
Here’s how California Insurance Commissioner Ricardo Lara characterized the problem in a February letter to state legislators: “Homeowners association communities and residents of condominium developments in wildland-urban interface areas of the state are facing particular difficulty accessing coverage because of the high concentration of risk. Constituents have reported special assessments of thousands of dollars per year, and in some cases, premiums of nearly $1,000 per unit, per month just to maintain the master policy of their housing development. This is an untenable situation, potentially affecting millions of California homeowners.”
See also: Flashpoint: The California insurance marketplace’s current crisis
This is the backdrop to which several top insurers showcased double-digit premium growth in 2022, according to the reporting showcased in our annual feature about the top 100 insurance companies and groups.
At the same time, analysts point out, those companies are experiencing high combined ratios, which means the cost of doing business for insurers has gone up significantly. “The growth in premiums that you’re seeing is a reflection of a very difficult operating environment,” says Tim Zawacki, principle research analyst with S&P Global Market Intelligence.
Both consumers and elected leaders seem well aware of why they’re paying more for insurance: Inflation paired with significantly higher loss costs. But that knowledge has little impact on the negative reputational hit the insurance industry takes when policyholders suffocating financially are made to pay more for the same service they’ve always received.
Among the top reasons that the insurance industry in general and carriers in particular get a bad rap in the public eye is a profit-driven business model along with complicated and confusing policy language, challenging claims processes, and the perception that certain groups of people pay more for insurance based on race or gender. “It’s not uncommon for people to think insurance companies are untrustworthy, greedy, and only interested in making a profit,” longtime broker Inez Cooper wrote in a recent blog post.
I’m not here to propose a solution to this conundrum but rather to hold up a mirror to the industry and ask questions: Can insurers course-correct so that they accomplish their mission without resorting to markedly higher premiums/? What other business models exist that would allow insurers to take a more service-minded approach? And, how will insurance organizations successfully recruit the next generation of industry leaders without being able to illustrate that the work is vital and satisfying as opposed to strictly concerned with the bottom line?
I know the insurance industry is stocked with smart, caring individuals. For the benefit of the business and society as a whole, I hope insurance leaders can forge a fresh, modern path that fulfils their mandate without zapping policyholder financial security.
The opinions expressed here are the author’s own.
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