Brace Yourself for the Catastrophic Rate Effect

As we encounter the tumultuous spring weather, you might be wondering, “When it will end?” Not spring, of course, but the thunderstorms, wind and rain that are part of the season. Your homeowners insurance and auto insurance rates may also see some stormy weather as policies renew this year. Why?

First and foremost, insurance is a transfer of risk. Large pools of individuals contribute money to a fund out of which losses can be paid. Conceptually – and in practice – the larger the group, the better off you are financially. However, sometimes, even despite the “law of large numbers,” the pool suffers. Following are some facts to assist you in understanding what’s been going on in the world of paying for losses.

During 2017, the insurance industry faced more than 41 catastrophic losses and paid in excess of $200 billion. For relativity, that’s more than six times the amount paid for catastrophic losses in an average year. During the first quarter of 2017, severe thunderstorms and convective weather were responsible for $5.7 billion in insured losses in the U.S. alone.

Not all companies are affected equally with respect to losses. It’s a function of how diversified their book of business is, with respect to geography and demography. An example of what’s coming from two carriers for Illinois rates in 2018 follows:

The aforementioned example does not and likely will not pertain to everyone and all companies; however, when you review your renewal, at least you will have some knowledge of why your rates might be rising.

Many of the homeowner’s claims are related to water.  Even in non-coastal areas, it seems water damage has a significant edge over other types of losses. Whether its ice damming in the winter months or a basement flood during spring storms, water always wins! While not all catastrophic losses involve water, especially as we witness the fires and devastation from the Hawaiian volcanic eruption, water losses deserve attention. Think about some of the following tips for mitigating the potential for future losses.

Remember, a backup generator system for your home can save you when power outages occur. Also, keep in mind that your sump pump doesn’t come with a life expectancy. In other words, some can run for many years and some can fail within several years, even if your power is on. Therefore, have the sump checked periodically and replace pumps that have been in service for many years. And not all water losses are caused in and around the sump pit.  Many are related to frozen pipes and/or a leak in a water supply pipe. Water shut off systems can be very effective tools in reducing the damage when there is a leak in the water line.

Clean gutters and keep your roof area free from hanging branches and other obstacles that can cause harm during a storm. And remember, fires can start during a rain storm. In fact, during 2016, more than $825 million in lightning claims were paid to more than 100,000 policyholders.  And, speaking of lightning, stay indoors and avoid being exposed to lightning. 2016 also delivered 38 deaths from lightning, up 46 percent compared to 2015. 1

When it comes to autos, you have read plenty in past Slice articles. Above all, put down the phone and be alert when driving. Distracted driving has contributed to abundant losses and even traffic deaths. Even more troublesome is the propensity for another driver to be uninsured. Although laws in most states require a minimum amount of liability insurance, approximately 13 percent of all drivers are uninsured, according to the Insurance Research Council. 2 Accidents involving uninsured motorists cost your insurance company more money when settling claims.

As we continue to deal with every day and catastrophic losses, there are ways to manage your policies and gain some efficiency. The carriers we work with also assist in consulting on risk mitigation strategies to assist you in avoiding unnecessary losses and claims. We are here to help you identify ways to efficiently manage your risk so you can sleep during the storm. Call us for a review.


1 National Weather Service
2 Florida tops the list at 26.7% in 2015 while IL stands at 13.7%