The Expert Podcast

Wow, the homeowners insurance crisis is really getting big. Even the Financial Times, which is a newspaper out of Great Britain, is reporting that the United States real estate market is now starting to be affected by homeowner insurance rate increases and even cancellations. If you live in more than half of the states in the country, you are having very serious homeowners insurance issues.

How do you deal with this? What's your solution? Well, we'll talk about what you might be able to do to alleviate some of these problems. But what is the origin of this? The insurance companies for many years have had to do rate increases based on historical claims. It states that license insurers are required to post their rates, their forms, and their coverages to get approved in order to sell insurance in their state. So if you go to your state regulator and say, "Look, I want to have these rates for insurance," you have to show them that that's what the claims have been to support those insurance rates. They don't want you to gouge customers.

The problem is that, for many, many years, for decades, insurance claims stayed about the same every year. They might have ticked up a little bit, so when you went for your rate increase, it wasn't that much different, or if it was, it had happened over a few years. Well, since 2019, insurance claims have gone up dramatically because of inflation and what they call social risk, meaning that more people are filing claims. Also, because of higher expenditures on claims for things like alternate transportation for vehicles and alternate housing for homes, there are total losses. The insurance companies have seen huge increases, plus natural disasters have increased.

So it takes a while to catch up on these. If they have these additional claims payments made, let's say in 2020, they have to wait till the end of the year, add up all their claims, put together a proposal, and file it with the state to say, "Hey, we want you to approve these new rates." They have to do that sometimes in 2021, and sometimes it takes the state a year to come back with their approval. So now it's 2022, and they can do the new rates in 2023. That's three years later. So for those two years, they lost money because of that, and the fact that they couldn't stay ahead of the claims increased.

Many insurers are starting to pull back or not insure. Some states are allowing them to accelerate their rate increases to cover their losses, but some insurers can't cover them fast enough. You have to have a certain amount of money in the bank if you're an insurance company in order to support your insured contracts, and if you don't, you can't sell in certain states. So a lot of insurers are pulling back. This is creating a void for homeowners to get insurance. Some homeowners are just going without insurance if they don't have a mortgage. Some are increasing their deductibles or lowering their coverage.

What do you do if you're a homeowner and your insurance company has raised the rates, pulled back your policy, or non-renewed you? The first thing to do is, if you can, start looking at alternatives for coverage in advance of your X date, your expiration date. So if your insurance renews in August, maybe in June or May, start contacting your insurance broker or agent and say, "Look, can you get some alternate quotes for my policy from other companies?" That way, if your company comes back with a non-renewal or a higher price, you already have other ones in the works and you don't have to scramble.
Why do you have to do that? Well, you would think that maybe your agent would just automatically shop around, but they really can't. Most insurance agents have two, three, or 400 policies under their book of business, and they can't shop everyone every year. If you ask them to, they definitely will, but if they did that every year, it would be more than a full-time job just to shop for all these coverages. If you ask them to do it, they may find something better.

As a matter of fact, we have a client who called us up. They had an umbrella policy for a million dollars, and they were spending $400 a year for that umbrella policy. It went up to $800 last year, and this year the insurance company said it was going to be $1,200. So they contacted our office, and we looked into it. We found an add-on umbrella policy with some other coverage they had that was $360 a year, saving them $800 a year.

There are options out there, especially now with excess and surplus lines becoming more prominent. You may find more insurance coverages available that weren't available before because they were blocked because there wasn't a proper search done on your primary policies. If you have any concern about your existing policies, whether they're too much money, your insurance carrier is changing coverages, or they're non-renewing your policy, start the process early to get some alternatives to covering your home, your auto, or any high-value business to make sure you're not scrambling at the last minute if you're non-renewed.