Tag: Insurance industry

Insurers such as State Farm and Allstate are leaving fire- and flood-prone areas. Home values could take a hit

Post By Business , , , , , , , , , ,

Some insurance companies are pulling back coverage from fire- and flood-prone areas, leaving homeowners with limited affordable options. This trend may even affect the property value of American homes, experts say.

The nation’s largest homeowner’s insurance company, State Farm, stopped accepting new applications for policies on property in California in May. Allstate announced in November 2022 that it would “pause new homeowners, condo and commercial insurance policies in California to protect current customers,” the Associated Press reported in June.

This trend will likely continue across the insurance industry, said Jeremy Porter, head of climate implications research at First Street Foundation, a nonprofit research organization that compiles comprehensive climate risk data.

“They know the risk is just too high to be actuarially sound for their business,” he said.

In its announcement, State Farm said too many buildings are being destroyed by climate catastrophes, inflation is making it too expensive to rebuild, and it can’t protect its investments any longer. 

More from Personal Finance:
Why a ‘death note’ is as important as having a will, advisor says
Economists say the labor market is strong, but job seekers don’t agree
Amid FAFSA delays, what to do if your financial aid letter is late

The problem is not just in California, where wildfires are prevalent. Louisiana and Florida homeowners are also contending with a lack of access to insurance, due to flood risk.  

“Losses are increasingly related to climate risk,” said Sean Kevelighan, president and CEO of the Insurance Information Institute, an insurance industry association. “As that risk increases, so does the cost of insuring those assets that people have on hand.”

Even though there wasn’t an increase in major disasters in 2023, he said, the industry is still expecting to see $50 billion in losses just because of “severe convective issues” such as flash flooding and the implications of heavier everyday storms. 

What happens when a homeowner can’t get insurance

Darlene Tucker and Tom Pinter

Without insurance, many homeowners can find themselves in big financial trouble. 

Darlene Tucker, 66, and Tom Pinter, 68, are longtime homeowners in Sonora, California. The couple bought their “dream home” 18 years ago and have been enjoying their retirement from their respective jobs in manufacturing.

Tucker also cares for her horses and a rescued 100-pound tortoise on the property, and runs a dog day care center to help make ends meet. She said Pinter also works as a delivery driver to help out.

Darlene Tucker and Tom Pinter’s home in Sonora, California.

The couple received a nonrenewal notice from Allstate in November. Tucker told CNBC she has been working with her Allstate agent to find another insurer.

“I had one company step up and said they’d do it for $12,000 a year,” she said — that’s roughly six times her previous annual premium under Allstate of about $2,000.

She said there was no way the couple could afford that new policy, and they would likely have to move. 

Dogs play at Darlene Tucker and Tom Pinter’s home in Sonora, California.

But Tucker and Pinter may find that selling their home also comes with a steep cost.

Porter said First Street Foundation’s research in California concluded that “the moment that an individual gets a non-renewal letter from the private insurance market, they essentially lose 12% of their property value.”

Insurance costs ‘should be an alarm’ for homebuyers

Experts say the insurance landscape in California is particularly tricky because, in addition to the wildfire risk, the state has a law that adds extra approval measures, including board approval and review by the insurance commissioner, if an insurance company wants to raise the rate of insurance by more than 7%. That’s been in effect since the 1980s.

Kevelighan, of the Insurance Information Institute, said that law, called Proposition 103, creates a regulatory environment in California that restricts the industry from adequately including climate risk in its forecasting and is one of the reasons the industry is being forced to pull back coverage in the state.

“Risk management does not come into play until it’s entirely too late when it comes to individual personal property purchasing,” Kevelighan said. “It comes into play when the mortgage provider needs you to go get it.”

“And that’s the first time when a consumer even begins to think about where they’re living and what the risks might be,” he said. “The cost reflects that risk. That should be an alarm to tell them that they’re living in a risky place and then ask themselves: How could I reduce that risk? Or do I need to think about living somewhere else?”

‘Give me something to work with’

With just days remaining until Tucker and Pinter’s Allstate policy expires, on Feb. 15, the couple is still looking for more options. Tucker told CNBC that a recent quote they received was three times what they were originally paying, with a $10,000 deductible.

Of the whole situation, she said she feels frustrated.

Darlene Tucker and Tom Pinter

“We’re doing everything we can,” Tucker said. “You know, we worked hard, we retired. We take good care of our house. I’m never late on my bills. I paid that [policy] for 18 years … And you just give me no choice. That’s the part that bugged me the most, I think. Give me a list. Give me something to work with. Raise [the price] if you need to, reasonably. But don’t just give me no choice. That’s not right.”

Tucker’s insurance agent from Allstate told CNBC that “most insurance companies are not currently writing polices in high fire prone areas,” and confirmed the company was trying to help her find other options.

A spokesperson for Allstate said the company is “working with the California Department of Insurance to improve insurance availability in the state. We’ll be able to offer home insurance policies to more Californians with the use of our advanced wildfire modeling and reinsurance.”

State Farm did not respond to CNBC’s requests for comment.

Watch the video to learn more about why some American homeowners are losing their property insurance and the changes the insurance industry would like to see to be able to offset some of the mounting risks. 

Clarification: This story has been updated to clarify when Allstate announced it would pause accepting applications for new insurance policies in California.

Source link

#Insurers #State #Farm #Allstate #leaving #fire #floodprone #areas #Home #values #hit

How to buy insurance for a business so financial disaster doesn’t strike

Post By Business , , , ,

Many Main Street businesses could be playing with fire — literally — by not maintaining appropriate levels of business insurance coverage, especially given the spate of natural disasters affecting multiple areas of the U.S.

Skimping on property damage and business interruption coverage is understandable to some extent, given the cost. While the price of a business owner’s policy — designed for small businesses in low-risk industries — varies based on a variety of underwriting factors and optional coverages selected, generally speaking, a small business owner might pay somewhere between $500 and $3,500 per year for this type of policy, according to Pogo, which helps owners find insurance.

But pinching pennies can be foolhardy as climate change continues to impact the severity of weather-related events. As of Sept. 11, there had been 23 confirmed weather/climate disaster events this year with losses exceeding $1 billion each in the U.S., according to The National Centers for Environmental Information, which was above both the long-term and five-year annual averages. These events included two flooding events, 18 severe storm events, one tropical cyclone event, one wildfire event, and one winter storm event. 

Hurricanes don’t just happen in Florida and tornadoes don’t just touch down in Kansas, said John Hyland, who leads the Sentry Insurance unit that providers business insurance solutions. Especially with weather patterns changing, a natural disaster is “coming to your neighborhood more and more often,” he said. 

Consider Friday’s flash floods in New York as an example of this new reality.

Here’s what small businesses need to know about business insurance amid climate change:

Understand property damage exclusions and deductibles — the fine print matters more than ever.

There’s often a big disconnect between coverage business owners think they are getting and what they actually are getting, said Hubert Klein, partner and practice leader for the Financial Advisory Services Group at EisnerAmper. They should press for greater detail with insurance agents and know, for instance, what property damage is covered and what exclusions may apply. They should also know what their deductible is and when coverage kicks in. It’s also important to understand whether the policy covers the full cost of replacement cost and what limitations apply.

Owners also have to understand the nuances of business interruption coverage, which can include waiting periods, co-insurance requirements and provisions for civil authority bans, when certain areas are declared inaccessible after a disaster. 

The fine print matters, Klein said. He offers the example of a business with multiple locations and roughly $20 million of coverage. If there’s a $1.5 million per-location limit and the business suffers extensive damage to multiple facilities, the business may not be adequately covered. By contrast, a policy that has a blanket limit might be more favorable, even with a slightly lower limit overall, Klein said.

Don’t rely on a policy’s ‘summary’ info or opt for lower cost without a thorough understanding of coverages.

Many small businesses chase prices without understanding what they are giving up, Klein said. At renewal time, they may get sticker shock and ask for a premium reduction, but they don’t always understand there are trade-offs for a $300 or $3,000 policy reduction, he said. He recommends owners read their policy carefully, not relying solely on the summary of costs or summary of coverages. 

Run through likely weather scenarios and don’t expect to ‘beat the storm.’

To ensure they are appropriately covered, owners should perform a thorough evaluation of what could go wrong with respect to their business property, whether that’s fire, flood, hurricane or something else. This analysis should take into account how much cash the business owner has on hand in the event of a disaster.

Owners “tend to think they can outsmart the weatherman or beat the storm,” Klein said. 

Even businesses that aren’t directly affected by disasters can face unexpected issues. In the aftermath of Superstorm Sandy, for example, some businesses didn’t have direct damage to their facilities, but utility company issues left them without power for weeks, Hyland said. Businesses that were properly covered for this type of occurrence had a source of revenue to continue paying their employees and the other expenses, he said.

Decisions related to specific coverage, endorsements and deductibles will vary based on a particular business’s needs, but it’s important to understand the various exposures, Hyland said. Even if businesses decide not to purchase particular coverages, they shouldn’t be oblivious to the potential exposure, he said.

Conduct an annual review and include inflation in business valuation and property replacement cost estimates.

Inflation makes the cost of replacing property more expensive, and the coverage you planned for three years ago may no longer be appropriate given a changed price environment. Yet many businesses don’t re-evaluate their insurance needs and coverage yearly, Klein said. 

Most business policies build in inflation-adjustments, but they often aren’t enough to keep up with real-world scenarios such as supply issues, significantly higher labor costs and longer completion times, said Nancy Germond, executive director of risk management and education at The Independent Insurance Agents & Brokers of America.

Check if more emergency cash might be required in your geographic market.

In certain areas of the country, the deductible for perils related to fire, wind and hail are higher than deductibles for other covered events, said Jen Tadin, managing director of the global small business practice at Gallagher, an insurance brokerage and risk management consultant. Especially in riskier markets, business owners may have to keep more cash on hand than say 30 or even 45 days, especially when there are higher deductibles to consider. “We can’t change the fact that in Florida, you’ll have a higher deductible. But you have to plan for it,” Tadin said.

Source link

#buy #insurance #business #financial #disaster #doesnt #strike

‘It’s a work in progress.’ How Covid has changed the life insurance marketplace

Post By Business , , , , , , , , ,

Family and friends gather in San Felipe, Texas, for the Jan. 26, 2021, funeral of Gregory Blanks, 50, who died of Covid-19.

Callaghan O’Hare | Reuters

As Americans brace for the third winter of the Covid-19 pandemic, many are still grappling with ongoing related health and financial issues — including insurance battles over long Covid treatments and disability claims. 

But for the life insurance industry, experts say the long-term effects aren’t yet known.

“It’s a work in progress,” explained Michel Leonard, chief economist and data scientist at the Insurance Information Institute. “There’s not enough statistical data at this point.”

Faced with a staggering loss of life, insurance firms saw payouts soar during the pandemic.

More from Your Health, Your Money

Here’s a look at more stories on the complexities and implications of long Covid:

U.S. life insurers paid more than $90 billion to beneficiaries in 2020, a 15.4% increase in payments compared to 2019 — the largest year-over-year jump since the 1918 influenza epidemic, according to data from the American Council of Life Insurers.  

Payouts to beneficiaries increased by nearly 11% in 2021, jumping to over $100 billion, the organization’s latest report shows.

The demand for life insurance policies also jumped as consumers rushed to protect loved ones. 

Individual U.S life insurance application activity increased by 3.4% in 2021, following a record-breaking year-over-year growth of 3.9% in 2020, according to the MIB Life Index’s 2021 annual report.

However, the life insurance industry is still wrestling with mortality changes and how these shifts may affect the underwriting process. 

There’s still ‘uncertainty’ about mortality

Stuart Silverman, principal and consulting actuary at Milliman, an actuarial and consulting firm, said the Covid-19 pandemic has affected the life insurance industry in several ways, as outlined in a paper he co-authored in June.

Two areas of consideration are “mortality assumptions,” which are projections of death rates and the “capital requirements” needed to keep life insurance providers solvent. Both can factor into the price of policy premiums, he said.

While it’s clear mortality rates have increased since the beginning of the pandemic, experts don’t know yet how factors related to Covid like preexisting conditions, compromised mental health or delayed care may affect future assumptions, according to the paper.   

“I think there is uncertainty with how this will unfold,” said Silverman, noting there’s “ongoing debate” on many of these points.

How ‘long Covid’ affects mortality assumptions

Future mortality assumptions are murky for those who may be suffering from so-called long Covid, one of the terms used to describe lingering health problems after contracting the virus.

These conditions affect an estimated 7.7 million to 23 million Americans, according to a report released by the U.S. Department of Health and Human Services on Nov. 21.

“It’s really difficult to underwrite for something that you don’t have a clear way to diagnose and define,” said Marianne Purushotham, corporate vice president and head of Limra’s data services.

It’s going to take five to 10 years for us to fully understand what patterns we’re starting to see.

Stuart Silverman

principal and consulting actuary at Milliman

Overall, the life insurance industry is in a “major data gathering stage,” Purushotham said, collecting information on all the ways Covid may be affecting mortality, including indirect effects like opioid overdoses and suicide rates.  

She said one of the “big considerations” is whether impacts will be a long-term trend, noting that companies may not want to change pricing if mortality “settles into where it was pre-Covid.” 

“It’s going to take five to 10 years for us to fully understand what patterns we’re starting to see,” Silverman added.

Applications may include Covid questions

While updates to mortality assumptions may take time, experts say life insurance applications have been quicker to change, depending on state regulations. 

Consumer advocate Brendan Bridgeland, policy director and staff attorney at the Center for Insurance Research, has noticed Covid questions appearing on life insurance applications since the beginning of the pandemic and expects more in the future. For example, some companies ask questions about your history of testing positive for the disease and if you have a current diagnosis.

“States are still coming to grips with it,” he said. “Companies have been quick to add application questions.

“But I don’t think they’ve been perfected yet,” Bridgeland added.

“While you may not see a vaccine question on a life insurance application yet, it’s more likely two to three years from now,” Bridgeland said. “I can see that on the horizon and I think that’s going to be inevitable,” he added.

“There are very big differences between the questions asked by life insurers right now,” Bridgeland said. “Some make a lot of sense and others are very vague and slightly concerning.”

With a lack of consistency across providers, he worries there’s potential for consumers to misread a question and answer it incorrectly.

If a provider finds inaccuracies, there’s a chance they will return your premiums rather than pay the death benefit to your loved ones, Bridgeland said.

To avoid mistakes, ask for clarification from an insurance broker or the provider, he said. “Just take your time, make sure you understand the questions and answer them truthfully,” Bridgeland said.

Regulatory guidance is pending

In January 2021, the Consumer Federation of America sent a letter to the National Association of Insurance Commissioners, asking the organization to adopt a model rule for life insurance underwriters who may “delay or deny coverage” to applicants who have or have had Covid-19.

Prompted by life insurance underwriting changes in Europe, the Consumer Federation of America requested that the rules be “totally transparent” and “meet standards for reasonability” for applicants who may experience Covid-related delays or denials.

“This rule is also important for current policyholders who may be considering dropping their coverage for a period to save some money to help the family get through the economic consequences of Covid-19,” the letter said. “These policyholders need to know the possible danger of such action.” 

The CFA also sent the letter to major life insurance companies, asking for them to “voluntarily make Covid underwriting rules public and reasonable.” 

While the NAIC addressed the letter during their spring 2021 meeting, the organization did not have enough information to consider supporting a model rule, a spokesperson for the National Association of Insurance Commissioners told CNBC.  

Source link

#work #progress #Covid #changed #life #insurance #marketplace