The last two years have been difficult for many industries including our own. We work with thousands of small businesses, property owners, investors, and families and are hearing the same story from many of them. We share your concerns for the increase in rates and increased limits to insurance company choices. We all know the challenges that have risen due to the pandemic and the way people have responded to it. I am grateful for the resilient people in our area that show up, work hard, and deserve the success they receive because we know it hasn't been easy.
The increase in rates and limits are a two-fold origin with the first starting pre-pandemic. The second cause comes from the increased costs of labor and material that the COVID lock-down have produced. In turn, the insurance companies have to pay extra for the claims that are submitted.
The first reason for the increased rates and restrictions is interesting and unusual, and frankly bad timing. Back in January 2017 we were firmly in a "soft market" when rates were fair enough and there were a handful of insurance companies that wanted your business. Insurance companies had nearly a decade of positive income and losses were consistent and manageable. Fast forward to 2020, we've now entered a "hard market" resulting in fewer choices, less coverage, and higher premiums. In three short years, we went from insurance being cheap and easy to being difficult and expensive.
So what changed? Here are three unusual circumstances unrealted to the pandemic that have contributed to the tightened insurance industry:
The average annual property loss from fire in the last 5 years has increased nearly 65% compared to the prior five years. Five of the top 10 costliest large-loss fires in US history have occurred in the last 5 years, including 3 of the top 5:
- (#2) Oct 2017 - Northern CA wildfire
- (#4) Nov 2018 - Camp wildfire
- (#5) Aug 2021 - Siege wildfire
Thousands of miles from here, these events feel unrelated but the insurance industry is reeling. In 2020, structure fire damages cost insurance companies as much as a Category 5 hurricane ($12 billion).
#2 Winter Storms
Winter storms are usually pretty manageable, but the polar vortex that disabled large sections of Texas in 2021, caused a record $15.1 billion in insured losses. There were about 425,000 claims and 210 deaths, the full extent of damages will not be known for a while but could easily top $20 billion. For context, that's ten times more the previous year, more than the 5 prior years' damages combined, and more than Hurricane Michael, a top ten all-time hurricane.
Hurricanes are the probable cause of the end of the soft market in Florida specifically. In 2017, 3 of the top 5 costliest hurricanes in US History occurred in quick succession:
- (#3) Hurricane Harvey - $32 billion
- (#4) Hurricane Irma - $31 billion
- (#5) Hurricane Maria - $31 billion
Florida remains the #1 state for number of single-family homes at risk by a wide margin, accounting for 44% of all homes at risk in the U.S. for a Category 1 storm. We have the second most coastline in the country, the highest change in population in coastal counties over the last 50 years (270%), twice as many people in coastal counties as Texas, and only behind NY with highest value of coastal property. It shouldn’t surprise anyone that Florida is always in discussion among property insurance, home insurance, and condo insurance company board rooms.
So what now?
These three causes, Fire, Winter Storms, and Hurricanes, would normally be enough to justify increased home insurance and property insurance rates across the country as well as targeted increases in high risk areas like the Panhandle. However, add in the pandemic related issues of increased material costs, increased labor costs, shortages, delays, and inflation, and it isn't any wonder why home insurance rates are outpacing inflation.
We at Norton Insurance try and keep up with local, national, and international trends because they all affect our marketplace. It is possible the current rate increase is an overreaction, similar to the spike in prices in the Florida workers compensation insurance market a few years ago when legislation was passed related to attorney's fees. Over time, the losses ended up not being as bad as predicted and workers comp rates have been falling ever since. There is a chance that we are seeing a similar spike in the property insurance market which will eventually self-correct. But when, if, and how much is impossible to know.
In the meantime there are things you can do personally to improve the price you pay for your home insurance, vacation rental property insurance, or commercial property, such as:
- Review your coverage amounts
- Opt for higher deductibles
- Explore discounts for hurricane protection such as hurricane shutters or replacing a roof
- Update plumbing, electrical, or HVAC
- Ask your agent for comparison quotes
We expect 2022 to continue the trend of 2021 and be a challenge for insuring property in Florida. Know that our staff is very experienced and will do everything they can to provide the best solution for your insurance needs. We are proud to represent many of the finest insurance companies and a large variety of options to better serve you. You have trusted us for 40 years, please be patient and trust us once more as we work through this year together.