Property and casualty insurers play a crucial role in safeguarding individuals, businesses, and assets from unforeseen risks. However, many of them are being confronted with a rise in claims and pricing pressures presented by an economy in an inflationary environment. These external factors can put a strain on many U.S. insurer’s reserves, profitability, and ultimately that can lead to higher pricing passed to the consumer or changes in business standards that can impact your coverage or claims experience. Let’s explore how insurers may adopt to navigate these challenges, what changes you can expect to your coverage and claims experience and what you can do to avoid price hikes and adverse changes to your coverage.

Wherever you fall on the Climate Change debate, the number of people impacted by each severe weather event (i.e. hurricanes, tornadoes, severe flooding etc.) continues to grow each year as U.S. residents flock to coastal areas. US census data from 2010-2022 shows double digit population increases for Florida (+14.6 percent), South Carolina (+10.7 percent), Georgia (+10.6 percent), and Delaware (+10.2 percent) [1]. According to a report from NOAA National Centers for Environmental Information (NCEI), the United States experienced 18 separate weather and climate events that each caused over $1 billion in damages in 2022 alone [2].

In addition, price increases have been exceptionally high for the goods and services that drive personal insurance claims. Supply chain issues during and in the post-pandemic era have caused inflationary pressures on the cost of auto parts, medical equipment and building materials all of which have a major impact on the cost of claims for insurance companies.

There are a few ways many insurers are responding to the aforementioned threats and challenges they are facing. Insurers must have a thorough understanding of the risks they are insuring and evaluate them accurately. Many are adopting a more data-driven approach as they leverage advanced analytics to identify potential pitfalls and prevent undue financial strain from unanticipated claims. They are relying on this data to adhere to stricter underwriting standards to avoid risks, but also to identify patterns and anomalies helpful in detecting fraudulent claims.

Most insurers have also invested in user-friendly mobile apps and self-service portals, enabling customers to submit claims and upload relevant documents conveniently. These digital platforms streamline the claims process, enhances the accuracy of information provided by claimants and reduces costs to the insurer.

Even the most robust predictive modeling won’t allow insurers to foresee all claims in advance and, in some cases, they may introduce or adjust policy exclusions and limitations to narrow the scope of coverage. By explicitly excluding certain high-risk events or circumstances, insurers can reduce the likelihood of paying out costly claims. Common exclusions may include coverage for specific natural disasters, pre-existing conditions, or certain high-risk activities.

Insurers might also adjust the methodology for valuating losses, especially for property insurance. For example, they might shift from full replacement cost coverage to actual cash value (ACV) coverage. ACV considers depreciation, which means the insured receives a payout based on the property’s current value at the time of the loss. This change reduces the insurer’s payout while providing some cost savings.

Finally, we can expect many insurers to simply adjust their pricing models and pass along some of these higher costs to their consumers without making any modifications to policy coverage parameters.

So, what can you do to counteract these measures and ensure your premiums remain steady, while maintaining adequate coverage.

• Bundling Policies: Insurers often incentivize customers to bundle multiple policies, such as home and auto insurance, by offering discounts.
• Modify your Coverage: Evaluate whether reducing coverage or increasing deductibles to reduce premiums might be the right move.
• Seek Professionally Advice: Allow us to offer a complimentary review of the insurance marketplace as a whole and compare it to your existing insurance coverage.

Recent economic and weather-related factors have necessitated many insurers to consider strategic changes that will allow them to better balance risk exposure and optimize operational efficiency. While these steps, they hope, will contribute to their financial stability and competitiveness in the property and casualty marketplace, they may not always align with the best interests of their clients. Periodic insurance portfolio reviews are the best tool a policyowner has to remaining aware of any changes to coverage, ensuring their coverage remains suitable and confirming it remains within budget.

_Footnotes:

1. _{https://www.reinsurancene.ws/increased-population-in-the-path-of-hurricanes-triple-i/}
2. _{https://www.ncei.noaa.gov/access/billions/}

_{Auto and home insurance is offered by unaffiliated insurers. Some health insurance products offered by unaffiliated insurers.} 

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