“Progressive ‘rebalancing’ in Florida by non-renewing 103K policies”– WINK News
“Nationwide will not renew thousands of homeowners’ policies in North Carolina”– Insurance Business America
“Why State Farm isn’t selling new California home insurance”– Cal Matters
& the list goes on…
The insurance market is in a state of flux, with significant changes affecting carriers and policyholders alike. It seems like every day there’s a new article about another insurance company either cancelling policies, non-renewing policies, or stopping new business altogether. There are a handful of factors leading to this, ranging from climate-related risks to economic challenges and regulatory changes.
While those reasons make sense to us in the industry, consumers don’t want to hear it. And I know why. One of the reasons I feel that I can resonate with our customers so well is because my dad is the epitome of your every day consumer. He’s in his late 60’s and doesn’t necessarily care what may be happening on the other side of the world. Only what’s happening in his world.
Here’s the mindset he has that I believe 90% of folks have when it comes to insurance:
- “Insurance companies have all the money in the world.”
- “I pay all this money for insurance and never use it, my rates should be going down.”
- “Insurance is a scam because companies never want to pay out claims.”
I get where he’s coming from. I get where all of our consumers are coming from. But the fact of the matter is that there are external pressures impacting the insurance industry that are causing companies to cut back on staff, halt new business, non-renew business, etc.
I know, you don’t want to hear it. But, if it helps you sleep better at night, here are a few of the issues causing the most turmoil in the industry.
Issue #1: Climate Change and Catastrophic Losses
In recent years, the world has witnessed a surge in extreme weather events and natural disasters. Hurricanes, wildfires, floods, and other catastrophes are becoming more frequent and severe due to climate change. As a result, insurance carriers are experiencing unprecedented levels of claims, leading to substantial financial losses.
In this scenario, many insurance companies are halting the writing of new business in regions prone to these catastrophic events. The frequent claims payouts have eroded their profitability, making it unsustainable to continue underwriting policies in high-risk areas. Some carriers are even withdrawing from certain states altogether to limit their exposure.
As a result, policyholders in these regions are left with fewer options and may see a significant increase in premiums. The insurance market’s retreat from high-risk areas raises concerns about insurance affordability and accessibility, especially for those most vulnerable to climate-related perils.
Issue #2: Regulatory Changes and Compliance Challenges
The insurance industry is heavily regulated, and compliance with ever-evolving laws and regulations is crucial. Regulatory bodies often update rules and requirements to protect consumers and ensure financial stability. These changes can be complex and costly for insurers to implement and in some cases, may prevent them from making any changes at all. This issue is most prevalent in heavily-regulated states like California that make it extremely difficult for insurers to issue rate changes.
Some insurance companies may choose to exit the market rather than invest in the necessary changes, leading to reduced competition. Policyholders may face higher premiums as the pool of available carriers shrinks, making it essential for regulators to strike a balance between consumer protection and industry viability.
Issue #3: Economic Uncertainty and Financial Pressures
Economic fluctuations and market dynamics can significantly affect the insurance industry. During periods of economic instability, investment returns can be diminished, affecting insurers’ profits. Additionally, low-interest rates can reduce income from investment portfolios, putting financial pressure on carriers that rely on these sources of income.
To maintain profitability, some insurance companies may limit new business or withdraw from specific markets. Policyholders may experience higher premiums as insurers seek to offset their financial challenges.
There are about 101 additional factors, but these are the most talked about issues today. As carriers adapt to these challenges, policyholders must remain proactive in seeking the coverage they need. As you continue to navigate the insurance market and look for competitive options, know that McHugh Insurance Group is here as an independent broker to help you along the way.