Since 1980, the U.S. has experienced 258 weather disasters causing at least $1 billion in damage, 46% occurring in the last decade, according to data from the National Oceanic and Atmospheric Administration (NOAA). 2020 was a particularly active year, with the worst wildfire season on record and an historic hurricane season. With estimated losses between $5.8 billion and $15.8 billion from hurricane damage alone, repercussions may be felt throughout the entire insurance market, reflected as higher premiums for insureds not directly affected by these catastrophic events.
For insureds in the Midwest, a greater concern may be the direct impact of increasing hail and wind events. Deductibles in the Midwest have typically included coverage for hail and wind perils under “all other property.” However, insurance carriers have started removing these specific perils from the all other property deductible and including wind and hail as a separate, and much higher deductible. Already a common practice for coastal and wildfire-prone areas, these specific deductibles are often calculated as a percentage of the total loss, which can be much higher than a set limit. Mortgages can also be impacted when the deductible goes over the limit laid out in the loan agreement. This can result in deductible buy-downs at an extremely high cost to the insured.
The unpredictable nature of climate and weather events makes it difficult for underwriters to assess risk, but that does not stop them from trying. Insurance carriers have invested in technology to build models and set rates, but this creates a lot of volatility for clients, usually resulting in higher premium.
Insureds may not be able to do much about catastrophic events, but they can take steps to reduce exposure to devastating claims. Start by reviewing property policies:
In response to this uncertainty, carriers will continue to respond by lowering capacity and increasing retention and premium. Contact your USI Insurance Services business insurance consultant to assess your exposure to risk and limit the impact of catastrophic claims.
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