As reported by Bloomberg Intelligence, 2023 marks the fourth consecutive year in which global insured losses resulting from natural disasters are projected to exceed $100 billion [1]. In fact, 2022 was the worst catastrophic year in recent history, with total global insured losses estimated at $140 billion [1].
Catastrophic convective storms, including thunderstorms, tornadoes, and hailstorms, are a major factor driving up the cost of reinsurance, an expense the primary carrier needs to pass along to customers. Insurers in the hardest-hit markets of California, Florida, and Louisiana struggle with the financial ramifications of widespread storm and fire-related damage.
In early 2023, the gap between reinsurance supply and demand was estimated at $60 billion, three times higher than what it was a year prior in 2022 [1].
As a primary result of another intense season of natural disasters, increasing property values, inflation, labor costs, supply chain issues, and an increasingly volatile property valuation landscape, there continues to be many challenges in commercial and personal insurance markets.
Commercial insurance market
The cost of construction materials and labor has been steadily increasing over the past few years. This has led to higher costs for repairs and rebuilding, which has, in turn, led to higher insurance valuations.
Construction-related costs have increased significantly over the past three years with structural steel increasing 55%, lumber increasing 35%, and the cost of machinery and equipment increasing by 18% [1].
43% of business owners say they have increased their policy limits to accurately reflect what it would take to replace an insured property now [1]. Policyholders with large commercial fleets and additional auto exposures have had greater difficulty securing excess layers of coverage alongside elevated program pricing.
In addition, 61% of businesses reported their current supply chains still aren’t functioning normally following the pandemic, with many companies recognizing the need to place orders for essential inventory and materials up to six months in advance to ensure timely deliveries and avoid operational delays [2].
Personal insurance market
The personal insurance market is struggling with multiple challenges, resulting in sharp auto and home insurance premium increases for consumers.
Home insurance
Property values are increasing due to a variety of factors such as growing demand, low interest rates, and limited supply, especially in desirable locations.
Homeowners insurance is becoming more expensive and, in many places, more challenging to find.
The costs to repair, replace, or rebuild structures and their contents following losses have increased, prompted by rising labor and material expenses, in fact, home replacement costs have risen 55% since 2019 [2].
Lack of available labor and a scarcity of auto parts were significant contributors to rising costs. Even with higher pay, 9 out of 10 contractors are struggling to find skilled labor and are delaying projects as a result.
Not only are costs increasing, but several insurance companies have decided to pull out of high-risk markets altogether.
Auto insurance
As the frequency of extreme weather conditions continues to increase, insurance claims also rise, affecting the cost of premiums for all policyholders. Comprehensive auto insurance coverage compensates for damages resulting from acts of nature such as flooding, hailstorms, tornadoes, and wildfires, as well as other non-collision-related incidents.
The cost of fixing cars surged by 23% during 2023, nearly four times compared to the average price increase across the board, thus increasing the cost of personal auto insurance [2].
In addition to increased costs, new policy changes have been implemented, most notably the automatic addition of Supplemental Spousal Liability to all drivers in New York State, as of Aug. 1, 2023.
While this policy has been available for many years, it’s now an automatic addition in New York State to policies upon renewal and affects all drivers, regardless of whether the insured has a spouse. Supplemental Spousal Liability provides bodily injury liability coverage and the ability to collect compensation and, in the event, that your spouse is responsible for an accident and you, as a passenger, are injured as a result. It’s critical to reach out to your insurance company if you do not have a spouse and do not wish to have this coverage, as a request has to be provided in writing for it to be removed.
Cyber insurance
With increased threat vectors, evolving technology, and increasing sophistication of attackers, the frequency and severity of cyber incidents has continued to increase, causing a rise in cyber insurance claims and subsequent underwriting losses. As a result of this volatile risk environment, most policyholders have faced continued premium hikes for cyber insurance.
At Lawley, we’ll help navigate through hard market conditions and guide you through all steps of the process. To discuss your options, call at 800-860-5741 or visit www.lawleyinsurance.com
Providing business insurance, home and auto insurance, Medicare coverage, wealth management and employee benefits administration, Lawley’s team of dedicated insurance professionals specializing in various industries, will work with you to develop customized programs to protect what you’ve worked so hard to build. Visit lawleyinsurance.com for more information.
Sources
[1] Travelers Insurance - Forces Driving Commercial Property Insurance Costs
[2] Zywave
As director of marketing and underwriting, Scott Dobosz specializes in business insurance, construction, Real Estate and underwriting. With almost 20 years of expertise, Scott leads the underwriting team on all initiatives, develops client relationships, and oversees all underwriting training and development opportunities.
