Resources & Insights

Escalating Insurance Premiums Hit High-Net-Worth Homeowners

May 11, 2023

Andy Orlando
Senior Vice President, Partner, CCIG

If you have sticker shock from rising insurance premiums, you’re not alone. Rates are quickly increasing due to various factors, including inflation, uncertainty in the global economy, increases in material and labor prices, and reinsurance costs, all of which have accelerated drastically over the past two years.

Rising Claims Costs are Leading to Underwriting Tightening and Premium Pressure

The cost of an average homeowners insurance policy nationwide rose 17-20% last year, and premiums are expected to continue climbing. Colorado has been hit even harder, with frequent hail and wildfire events causing insurance carriers to pull back from the state.

Placing homeowners insurance in the Colorado foothills is a challenge. Many carriers have all but stopped writing new policies between the Front Range and the Continental Divide due to the dry climate, high temperatures, and unmanaged vegetation in the surrounding communities with multi-million-dollar properties.

Colorado isn’t the only state that’s under the microscope. Many carriers are tightening underwriting guidelines in Florida, requiring higher hurricane deductibles (sometimes upwards of 10% of the home’s value), or simply declining to offer hurricane coverage in specific areas. California’s brushfire and wildfire risks are a major concern for carriers, with many affluent carriers ceasing to write in the state altogether.

Some carriers are even canceling coverage for families in these communities, leaving them with few options for replacement coverage. Many homeowners shopping their insurance due to premium increases are disappointed to find higher rates and limited options across the industry.

The Impact on Carriers Affects Consumers Too

Carriers nationwide are struggling to remain profitable in today’s volatile environment. State Farm reported a $13.2 billion underwriting loss in 2022, attributed to inflation, increased claims severity, and an uptick in prior year claims. This represents State Farm’s largest underwriting loss in the company’s 100-year history, underscoring the significance of shifts in the market.

Experts are predicting reinsurance prices to rise 30.1% in 2023, compared to 14.8% in 2022. Increasing catastrophic events countrywide — from hail and wildfire in the west, to ice storms in Texas, and seven Category 3+ Hurricanes making US landfall since 2017 — translates to higher reinsurance costs. Rising interest rates also have a significant impact on the cost of reinsurance, where reinsurance investors expect return yields above investment classes with lower risk, like Treasury Notes and Bonds. It’s important to remember that these higher reinsurance costs are ultimately passed down to the consumer, which is why planning and preparation are key.

Consumers should expect a 10-25% premium increase for homeowners policies and a 10-15% increase for auto policies. Homes in higher-risk areas can even see increases up to 50% or more, and we anticipate further rate increases into 2024 and beyond. So, how can you balance your costs with adequate coverage amid all this uncertainty? One of the best strategies is leveraging the expertise of your insurance advisor.

Insurance Review: Your Next Step in Addressing Rising Rates

Consider scheduling a meeting with your independent insurance advisor to map out the best course of action to navigate the current insurance market. A comprehensive insurance review can address the cost and placement challenges consumers are experiencing today, ensure you have appropriate coverage, and help structure a long-term insurance plan.

Here are some recommendations families can immediately consider while reviewing their insurance program:

  1. Report Claims with Caution: Your insurance program should be structured to protect against catastrophic events. Now more than ever, families should be cautious when reporting small claims to their insurance provider.
  2. Consider High Deductibles: Too often we see homeowners with $1,000 deductibles and $250 or $500 auto deductibles. Deductibles are the quickest way to manage annual premium spend – consider $1,000 or $2,000 auto deductibles, and $5,000 or $10,000 home deductibles.
  3. Don’t Overuse Windshield Glass Coverage: Clients reporting frequent $50 glass chip repair or $1,000 windshield replacements could have trouble finding new insurance should they shop the market.
    • Carrier underwriters are heavily scrutinizing these small claims and will decline to offer coverage to clients with a history of small claims.
    • Additionally, many carriers have built-in rating algorithms that do not “surcharge” for glass claims (as they advertise), however, they place your policy in a worse rating tier if you have too many, resulting in a higher premium.
  4. Insure Your Home to Value: What would it cost to rebuild your home in 2023? That is the coverage amount you should carry on your home policy. Home Replacement Cost and Home Market Value are independent values.
    • The replacement cost often exceeds the market value, especially for homes that are over 20 years old.
  5. Protect Your Home Against Future Losses: Speak with your insurance advisor about risk prevention devices and strategies that reduce your risk of a future claim. Insurance carriers provide substantial discounts for clients who invest to lower their risk profile. These include centrally monitored fire & burglar alarms, automatic water shut-off devices, electrical surge detectors, and back-up generators.
  6. Verify Insurable Interest: Ensure that any Trust or LLC entities with insurable interest are appropriately listed on your home, auto, and umbrella policies.
  7. Protect Valuables: Make sure that your valuable collectibles are protected on a Valuable Articles policy – these could include jewelry, artwork, sculptures, coins, stamps, wine, whiskey, or musical instruments.
  8. Carry an Umbrella Policy: This is the least expensive, easiest component of a financial protection plan. Umbrella policies provide coverage against major lawsuits and settlements against you. The most common umbrella piercing settlements are automobile and boating accidents resulting in death(s), traumatic injuries, and/or paralysis. Most traditional carriers only offer up to $5 million, but carriers catering to affluent households can provide up to $50 million or even $100 million of coverage.
    • Consider your total net worth when selecting an umbrella limit. That is ultimately what you have to lose and what we need to protect.
  9. Speak with an Independent Advisor: Find an advisor who specializes in protecting affluent families and has access to the affluent insurance providers. These include Chubb, PURE, AIG Private Client Group, Berkley One, Nationwide Private Client, Cincinnati, and Vault.

There’s no time like the present, and our team is here to help – get in touch with Andy Orlando to navigate the intricacies of the insurance market. The CCIG team is here to answer your questions and offer a strategic roadmap for your insurance needs.

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