“In a major overhaul of their approach to homeowner’s coverage, the nation’s big insurers are jacking up rates, canceling coverage — and backing out of some markets altogether.” The Wall Street Journal, May 14, 2002
Some of you will already have learned the truth of this statement. Across the whole country, homeowner’s insurance rates are increasing as insurers re-price their product because of massive claim payments. No area is unaffected; in the Midwest the main problem has been water damage claims. Ice in the winter and rainfall in the spring and summer have increased to unprecedented high levels, causing widespread flooding.
The Insurance Company Response
For several years personal lines insurance premiums have remained artificially steady despite rising claim costs and other expenses. The buoyant investment returns from a bullish stock market enabled insurers to put off any price increases that could scare away customers and reduce their market share. But the last couple of years have seen those returns plummet. This, coinciding with the dramatic upswing in losses, has put insurers’ backs against the wall. No longer able to count on investment income to support their earnings, insurers must now re-underwrite their entire portfolio. The immediate result is premium increases for many policyholders with no claims, and possible rejection for those with any kind of claim history.
What Can You Do?
Taking a punitive approach to all policyholders may not seem fair to loyal customers, but for the insurance company its future could be at stake. The good news is that you need not stand by passively as your premiums rise. You can and should talk a more proactive approach to how you manage your personal risk, and we suggest the following:
1) Review Your Deductibles For most high net worth individuals, homeowner’s insurance is really catastrophe insurance; smaller losses can be assumed by the policyholder. Policyholders should consider increasing their deductibles to a minimum of $2,500. Higher deductibles can offer substantial premium savings, especially for individuals who own multiple properties.
2) Consider Your Options After a Loss In this new insurance climate a claim, however valid, makes you a less desirable customer. Claiming on your insurance after a loss is only one alternative. Consider not making an insurance claim and funding the loss yourself. Clearly, if the loss is high enough you must claim, but recovering a small amount once or twice only to find your renewal increased or even refused is a short-lived benefit.
3) Evaluate your Carrier While the general mood is difficult, not all insurers are reacting in the same way. What you should not do is shop around for a low-priced alternative. Remember that buying an insurance policy does not always equate with buying protection. An inexpensive policy that falls short when you most need it is a false economy.
Chartwell Bulletins are produced by Chartwell Insurance Services, Inc. an independent insurance broker specializing in the personal asset protection of high net worth individuals. Chartwell Bulletins address issues of general interest and since coverages vary by company and by state, should not be taken as an interpretation of a particular policy or advice on any individual situation.
A representative of Chartwell Insurance Services, Inc. will be pleased to discuss all aspects of your personal insurance. Contact: Rebecca Korach Woan | 312. 645.1200 | firstname.lastname@example.org