Natural disasters have raised costs for global insurers and reinsurance companies, stemming from gigantic economic losses over the last five years. Reinsurers who usually absorb risk from primary insurers as a failsafe have seen substantial disaster losses, which have greatly impacted profitability.
Experts are now saying to brace for a difficult commercial property market in 2023 because of instability with catastrophic damage damage, resulting in the 6th straight yearly increase and a 9% year-over-year spike in price in property insurance.
But the insurability problem doesn’t stop there, and in some ways, it’s only beginning.
- Excessive damage from flooding and wildfires, insurance fraud, inflation and crime have contributed to rising insurance premiums and in some cases, insurance companies refusing to write insurance policies for new customers or renew policies for current customers.
- The rapid increase in the demand for resources and goods, combined with frequent supply chain delays, has resulted in a surge in business and personal property loss claims. Subsequent price increases for auto parts (such as computer chips for smart cars), rental vehicles, and construction materials are expenses that are increasing insurer loss costs in 2022 – 2023.
- Governments around the world are working on preventing the recovery force from unraveling and economies from entering recession, which might undermine insurance company investment returns by limiting the profitability and growth of interest-sensitive life and annuity (L&A) products.
Along with the average consumer, small and medium sized companies were most directly affected by the recent (and unending) bad news in the insurance market. Insurance went up across all insurance offerings that businesses typically rely upon like general liability and commercial vehicle insurance, which both saw an 6+% increase.
In some cases, home buyers’ mortgages now cost less than their home insurance premiums themselves. With insurance required by the lender to keep their home, much like how it works with car insurance, many hundreds of thousands of people are being put at risk of losing their homes due to extreme price increases.
In many cases, insurance companies are seeing record profits, like in healthcare and the auto insurance business. So what’s the real story?
And just how bad is the American insurance crisis?
America’s Insurance Affordability Crisis
Nothing shows the unaffordability of insurance like Florida’s property insurance market.
In 2022, The Citizens Property Insurance Corporation, a non-profit state-run insurance company of last resort, doubled its entire enrollment to 1.2 million. Citizens Property Insurance Corporation was formed in 2002 to provide windstorm coverage as well as ordinary property insurance to homeowners who were unable to obtain insurance elsewhere.
The growth has been unexpected, but alarming, and many experts are wondering if Citizens Insurance will be able to pay out if a million of their policyholders had to a property claim. Private insurance companies have had to raise their rates 30 – 50% while the state limited rate increases for Citizens’ insurance policies to around 8%. This unfair competition has further weakened private insurance companies ability to keep their customers’ policies from skyrocketing.
Hurricane Ian delivered another destructive blow, and the state is still recovering from massive fraud targeting both homeowners and insurance companies that have ultimately hurt homeowner insurance affordability.
Florida’s Homeowner Insurance Affordability Problem
According to the National Insurance Crime Bureau, roofing fraud is not all that uncommon. But who knew that it would practically bring down the entire Florida homeowner insurance industry?
Natural disasters are nothing new in Florida, which already has the highest property insurance rates in the nation, with nearly every homeowner concerned about preserving their property during hurricane season. One of the most problematic forms of damage from powerful storms and falling trees is roofing damage.
In the start of 2022, a slew of news stories revealed that many insurers were dropping homeowners and refusing to renew their policies based solely on the age of the home’s roof – regardless of the roof’s actual condition.
This is a huge issue for homeowners who still have a mortgage on their home, as lenders frequently refuse to lend to people who do not have insurance. Going without insurance is a risky notion in a state where natural disasters like hurricanes are significantly more probable than in other parts of the country.
Following an increase in the number of homeowners having their insurance policies cancelled — or insurers refusing to grant them coverage — solely because their roof was too old, the Florida state government established new roof criteria for homeowners insurance in Florida in May 2022.
Insurance companies would be prohibited from denying coverage based on the age of a roof if it is less than 15 years old. Insurers would also be required to allow homeowners to evaluate the condition of roofs older than 15 years before refusing coverage. If the inspection reveals that the roof has five or more years of usable life remaining, the insurance provider cannot refuse coverage based only on age.
Roofing Fraudsters Bring Florida Property Insurance Market to its Knees
As is customary, bad actors took advantage of an already difficult position when it came to the property insurance situation in Florida.
Contractors would knock on residents’ doors and offer to assess their roofs for storm damage. Then promise to be able to help homeowners have a roof replacement paid by insurance, and they persuade them to give away their rights to file claims independently.
When the insurance companies refuse to pay the contractors’ false damage claims, the contractors sue. Insurance companies typically settle disputed claims for much more than the original claim. The majority of such money is paid to the contractors’ lawyers as a “contingency fee multiplier.” Every year, some lawyers file hundreds of such lawsuits.
It’s eventually gotten to unsustainable levels of loss for insurance companies. The homeowner may receive a free roof or the insurance company gets sued, but everyone pays for it through higher rates, until the entire industry goes bankrupt. Then everyone has difficulty simply buying a home.
Florida Fights Back Against Roofing Scams
In an effort to reduce the number of roofing frauds in Florida, Governor DeSantis recently passed legislation prohibiting roofers from contacting homes. This means that roofing contractors are not permitted to make unsolicited contact with homeowners via any written, electronic, or in-person means.
Solicitation includes, but is not limited to, the following:
- Hangers for doors
- Company cards
- Visits to your house or any other form of live communication
According to Florida law, roofers are no longer permitted to solicit door-to-door, which is vital to the scammer’s marketing strategies. The law also limits the amount of time that homeowners have to file claims.
If you sign a contract with a roofer who illegally solicited their company, they have 10 days to cancel. If a roofer violates the new law, which takes effect on July 1, 2021, they might face a $10,000 fine as well as criminal charges.
A federal judge, however, suspended portion of the statute, claiming violations of commercial speech rights and the First Amendment.
California Struggles to Keep Property Insurers in the State
On the other side of the U.S. in California, Allstate is halting all new commercial insurance coverage so that it can continue to safeguard and pay out claims to current customers.
“Wildfires, more frequent and serious accidents, and inflation-inflated repair costs are leading insurance claim expenses in California to climb without the premium to cover them,” an Allstate spokesperson said in a recent statement.
Insurers in California have always had to consider earthquake risk, but with wildfires becoming more common and recent flooding causing an estimated $31 billion in economic losses, including property damage. Now, those risks are increasing. And with increasing risk comes higher rates for property owners, whether from regular price increases or from increased competition as insurers withdraw.
Allstate doesn’t write much business insurance in California, and the firm has reluctant to divulge how much property it insures in the state, so the withdrawal isn’t a game changer in and of itself. However, the move is an indication of strain in the state’s insurance market, which is likely to worsen as the weather worsens.
San Diego Condominium Homeowners Insurance Canceled for Many Residents Due to Wildfires
A company may discontinue providing homeowner’s insurance in the policyholder’s region, which would result in a nonrenewal,, which is what happened to many condo owners in San Diego recently.
More than 300 Tierrasanta condo owners are scrambling to get property insurance after Farmers Insurance canceled their policy due to wildfire risk. Farmers Insurance recently chose not to renew the complex’s $127 million insurance coverage, which covered property and wildfire damage.
According to the Union-Tribune, Farmers recently canceled property insurance for Canyon Park Villas, a 240-unit condo complex in Rancho Penasquitos. An unidentified homeowner emailed CBS 8 to claim that Farmers had also canceled property insurance in the 338-unit Morada development in Rancho Bernardo.
Whether a policyholder is in good standing or not, business strategies employed by the insurance company may account for a nonrenewal. In this case insurance companies have reported the risk of wildfire to be the reason for not covering their condominiums any longer.
Homeowner’s and Property Insurance in Louisiana Becoming Unaffordable
Following Hurricanes Katrina and Rita, so many insurance firms folded or fled the state that 173,000 property owners were forced to rely on Louisiana Citizens Property Insurance, a state-run insurance of last choice. Citizens is required by law to charge premiums that are 10% higher than the highest private insurer in each parish.
By 2020, with competition restored in the private insurance market, only 35,000 properties required Citizens coverage. Then there were the devastation caused by Hurricanes Laura, Delta, Zeta, and Ida. More than 20 companies have dissolved or fled the state, and over 100,000 policyholders are once again solely covered by Citizens Insurance, a state-backed not-for-profit insurance fund of last resort for people who can’t obtain insurance elsewhere, at rates that are 10% higher than the market and rising rapidly.
Rather than paying firms to come to the state or expand their business to the state, former Insurance Commissioner Jim Brown believes Louisiana will assist insurers who already write in the state in covering the rising cost of reinsurance, which is what Florida did last year.
Florida has already set aside $3 billion in tax dollars for a reinsurance fund. Companies can apply for funds to help them pay for reinsurance.
According to Florida State University Professor Charles Nyce, investors are hesitant to finance reinsurance right now due to large losses from natural disasters around the world, such as the California wildfires and floods in Germany and Australia. He claims Florida’s fund is only a stopgap measure until reinsurance rates fall and may not work as well in other states with smaller states’ economies and available funds.
Auto Insurance Premiums Going Up for People– and Business
Rates for personal auto insurance are projected to rise by over 8% for a variety of causes in 2023, according to Lending Tree, and the biggest increase in 6 years.
Because fewer people lease cars and used cars are now more expensive, insurance companies must pay more when they are totaled. Newer car models can raise rates as well because they are more technically complicated and require more time and money to repair.
Furthermore, supply chain concerns are increasing the time and cost of repairing a car. Over the last year, supply chain issues, parts shortages, and autos requiring longer to fix have all led to increasing claims costs.
And, during the pandemic in the state of Illinois, 4 of the biggest auto insurance companies– State Farm, Progressive, Geico, and Allstate– pocketed over $280 million while their customers saw no real, lasting reduction in their car insurance premiums. Even while people were driving less.
Major Car Insurance Companies Are Refusing to Insure Older KIA and Hyundais Models Produced from 2011 – 2021
According to the companies, Progressive and State Farm, two of America’s largest auto insurers, are declining to sell insurance in certain cities for some older Hyundai and Kia models that are considered too easy to steal.
According to multiple reports, the insurers have stopped offering insurance on these vehicles in cities such as Denver, Colorado and St. Louis, Missouri. Last year, more than 1,000 Kia and Hyundai vehicles were stolen in New Orleans alone, accounting for a sizable portion of the city’s total theft of 4,400 vehicles. Chicago is also off to a fast start in 2023 with a massive thefts of these vehicle models.
According to HLDI, stealing these vehicles became a social media trend in 2021, when car thieves began posting videos of their thefts and joyrides, as well as videos detailing how to steal the cars. In Wisconsin, where the crimes first became common, theft claims for Hyundais and Kias increased by more than 30 percent in dollar terms.
In fact, Hyundai and Kia models from 2015 to 2019 are roughly twice as likely to be stolen as other vehicles of comparable age. According to the HLDI, one of the reasons is that many of these vehicles lack basic auto theft prevention technology found in most other vehicles, even in those years.
These models lack electronic immobilizers, which rely on a computer chip in the car and another in the key communicating to confirm that the key is genuine and belongs to that vehicle. An immobilizer should stop the car from moving if the correct key is not present.
“Because theft losses for these vehicles have increased dramatically, State Farm has temporarily stopped writing new business in some states for certain model years and trim levels of Hyundai and Kia vehicles. This is a serious issue that affects both our customers and the entire auto insurance industry “According to a State Farm representative.
But instead of blaming the car manufacturers, why don’t they point out the obvious– the largest, most diverse American cities are becoming unlivable. When you can’t take a risk on buying a basic 4-cylinder fuel-efficient, non-flashy car to get to work, but you calso cannot take a risk of riding the city bus, what then are you supposed to do?
What a lot of Americans are already doing– leaving big cities behind as they deteriorate.
New Orleans Police is offering free steering wheel locks to drivers of Kias and Hyndais in an attempt to help prevent theft before it happens.
Uninsured Motorist Problem in America is Rising, Causing Increased Burden to the Average Driver
In Florida, nearly 27% of all drivers on the road are uninsured.
According to the Insurance Research Council (IRC), the overall annual bill for US drivers is approximately $12 billion, which does not include the cost to taxpayers of taking uninsured motorists to court, attempting to force them to pay fines, or losing their driver’s licenses.
The average American driver pays almost $100 extra a year for their current auto insurance policy due to uninsured (UI) and underinsured drivers. When buying car insurance, company representatives will also often offer you special UI insurance, since general liability insurance coverage minimums are often grossly inadequate to cover medical costs from an accident.
Hit and run accidents have also gone up, including those involving a pedestrian.
Sixteen states and the District of Columbia presently let illegal immigrants to get a driver’s license, but the remaining states do not. According to consumer advocates, many people simply cannot afford to acquire insurance on a regular basis, let alone pay all of the additional costs associated with driving. As a result, they purchase insurance for a month or two and then let it lapse.
This dilemma is likely to worsen in Florida, which may experience a rise of transplants from damaged Puerto Rico.
Twenty U.S. states and Washington D.C. require UI motorist insurance. Uninsured motorist bodily injury and uninsured motorist property damage are needed in Indiana, however they can be refused in writing.
If a person is hit by an undocumented immigrant, they can file a claim under their uninsured motorist coverage. In other words, having an uninsured motorist for both bodily harm and property damage is a very good idea these days, although it doesn’t address or reverse government incompetence and malfeasance.
The Number of Life Insurance Policies Have Decreased Greatly
In the last 20 years in the United States, fewer insurance coverages have been hit harder by economic reality than life insurance policies. The average number of life insurance policies purchased per year is down a massive 80% since the early 2000s. The life insurance company that AARP used to recommend even stopped writing new policies just a few years ago.
There’s a hard economic fact that keeps rearing its ugly head throughout all this.
The middle class is shrinking and people simply don’t have the money to spare to buy whole life insurance policies the way they once did. Now they’re likely hoping that the value of their home would be sufficient to cover financial needs later in life through a reverse-mortgage, should a loved one pass away and it incur a financial burden.
Un-Affordable Care Act? Health Insurance Prices Still Going Up, Insurance Companies Making Record Profits
Health insurance’s affordability has been in question since as recently as 2018 with many family insurance plans now costing $21,000/year, which some individuals do not even make in total income per year.
The American Rescue Plan Act (ARPA) injected subsidies into the Affordable Care Act to make healthcare more accessible by low-income Americans, but without those government subsidies continuing, about 3 million people will lose their health coverage.
In 2019, four out of every five Americans believe the country is now experiencing a health-care affordability problem. Almost eight out of ten Americans are concerned about other Americans’ ability to obtain inexpensive health insurance.
UnitedHealth, the largest insurer in the United States, has seen its net earnings skyrocket since 2015, hitting $17.7 billion last year as its business has swiftly expanded into other healthcare industries. But record insurance company profits are a small part of a larger debate about rising healthcare costs in recent years.
Prices established by providers including as hospitals, doctors, and pharmaceutical firms are rising even as fewer Americans sought medical attention during the pandemic. Administrative expenditures alone account for more than a quarter of all healthcare spending in the United States.
Anti-competitive tactics and skewed incentives throughout the health care ecosystem are at the foundation of these fast rising costs:
- As hospitals continue to purchase physician practices, the effect is that reimbursement is frequently used to maximize income and drive up patient rates.
- Pharmaceutical companies have used U.S. patent laws and Food and Drug Administration guidelines to keep similarly effective alternative treatments from becoming available to patients, resulting in skyrocketing drug prices. On average, Americans pay roughly twice as much as consumers in other high-income countries.
- Fee-for-service payment methods stimulate the provision of additional health care services, even though they are unnecessary and frequently result in poorer health outcomes.
Another fundamental issue is the underlying inflation and loss of purchasing power in the U.S. dollar, which have been additional drivers in the costs of healthcare, as well as the Affordable Care Act.
Perhaps the age-old question of “Who’s going to pay for it?” is now being answered.
While Americans are told by mainstream press to be happy about any nominal raises in pay, when factored for inflation, Americans are actually making less money than they were before 2020.
Many businesses have switched to 1099 contractors instead of employees who’d require benefits. You’ve probably heard of the term before: “the gig economy.” It’s really just another great way of saying, “You do the same work but you don’t get any benefits.”
Moving forward into 2023, health insurers are also removing “less profitable clients,” i.e., business groups with sicker employees, “to enhance profits,” according to Bloomberg. Essentially, insurers are pulling every lever they can to boost their already-exorbitant profits, which means higher premiums for average policyholders.
The price hikes might affect the almost 160 million Americans who rely on health coverage via their employer, which is about half the country and likely over half of all medically insurable Americans.
Conclusion: America’s Insurance Affordability Crisis
In an Allianz Insurance Survey for businesses, cyber incidents and business interruption ranked as the biggest company concerns for the second year in in a row among respondents. People and businesses are both needing new forms of insurance while having to find ways to pay for additional costs from their existing insurance.
For businesses (and average people) in many countries, 2023 is likely to be another year of heightened risks and price increases for insurance prices. The only insurance coverage that didn’t go up was workers’ compensation.
Probably because no one wants to work anyway. And when they see how their hard-earned money goes even less far, when the dream of home ownership becomes just that– a dream– can you blame them?
Frequently Asked Questions – America’s Insurance Affordability Crisis
Insurance rates are going up across the board for all types of coverages: personal auto, commercial auto, homeowner’s insurance, commercial property insurance, healthcare, cyber, business interruption, and catastrophic coverage. The only coverage that will see no change is workers’ compensation.
While the ACA may have allowed more people access to healthcare for a period of time, health insurance for working families now costs around $21,000/year, almost a third of the median household income, even with Americans using healthcare less after 2020. United Health Group has seen record profits in the decade after the ACA was passed, while the cost of all insurance has gone up in the same period.
Car insurance continues to go up. Even though people drove less after 2020, car insurance companies made record profits because they had fewer claims to pay out, but they didn’t pass those savings onto consumers. Another reason: there are more uninsured drivers on the road than ever, which means honest people get to pay more for their premiums. Inflation is another reason. Finally, crime has also gone up, and social media has enabled criminals to share and take part in challenges where vehicles with weaker security systems are exploited, which has even led to many insurance companies refusing to create new policies for certain types of otherwise mundane and basic vehicles which regular working people rely upon.
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