Is Insurance Crushing The Real Estate Market?

  • June 19, 2024
  • 3 min read

The US Home Insurance System in Crisis
Well, that’s quite a statement that the US home insurance system could collapse. This was a great video that was, um, on one of the major YouTube channels, and what they’re talking about is the major insurance companies and reinsurers are having a tough time placing coverage for residential homeowners Market Property and Casualty markets. The reason why is because the proliferation of natural disasters—hurricanes, hailstorms, tornadoes, earthquakes, fire—is creating a larger claims experience for these insurance companies than they had planned for.

Challenges in Adjusting Rates
You would think, well, just charge higher rates. Well, they could do that except for the rating system in most states, which requires that you put in a request for higher rates based on your prior claims experience. Then you have to wait a year or two for them to approve it and then put them in place. So for that one or two or three years, you’re losing money on all of your policies. Some insurance companies elect just not to sell insurance anymore in a state where they can’t get the right rate, or they have to close because, in order to stay viable and licensed in a state to sell insurance, you have to have a certain amount of cash available to pay claims. If you’re not taking in cash fast enough to replenish your supply, you’re going to be underfunded and you have to close.

Impact on Homeowners
That may be something that creates a void in available coverage even for homeowners that are not in a disaster area. Maybe you’re not in a flood zone, maybe you’re not in a major earthquake zone, but if you’re in a state or region that those claims affect your policy rating, you could be out of luck.

Exploring Insurance Options
So, there’s a few options for this, and we’ve talked about them before. You can also click below for some consultation about your particular scenario. There’s parametric insurance that could fill some of these gaps. You may be able to adjust coverage to a different waiting system where you have different deductibles, different limits that allow you to still have coverage. You can also do exclusions from coverage. You have to make sure that if you have a lender or a mortgage company, that it’s allowed under your mortgage contract, but it may be time to look at some non-standard insurance options.

Importance of Being Covered
You can talk to your agent about it, but sometimes they may not be aware of some of these options to make sure that you have coverage for your risk. You don’t want to be uninsured because if something happens, God forbid, you’re going to lose everything. But you also want to make sure that the coverage matches what your risk tolerance is and your appetite for taking losses but also your ability to pay based on your finances.

Conclusion
The takeaway from this is it’s a different environment for insurance, especially Property and Casualty. So, look at your coverages and talk to an expert. You can click below if you want to do a consultation about how to structure an insurance profile for you and your family that doesn’t break the bank but still protects you from a catastrophic loss.

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