More Claims, Rate Increase and More
“Climate is what you expect, weather is what you get.”
– from the National Oceanic and Atmospheric Administration website
If you imagine climate change as a tornado, the insurance industry is going to take a direct hit. In the last year alone, unprecedented freezes affected much of Texas, hellish wildfires and choking smoke engulfed large swaths of multiple Western states, and a record 30 named storms washed over the Gulf Coast and the Atlantic seaboard during the 2020 hurricane season.
As a result, consumers filed home, auto and renters claims in droves, and insurance companies paid out billions of dollars. It’s going to get worse.
As weather patterns continue to shift, it’s not a question of if the insurance industry is going to be affected, rather it’s how much and in what ways. McKinsey and Company predicts a doubling of the percentage of global GDP value related to climate-induced hazards from about 2 percent to more than 4 percent by 2050. For insurance companies, this will require a rethinking of how they rate and charge consumers for risk.
For insurance agents, here are some of the ways you can expect the industry to change in the near future:
1. More Claims
According to the National Interagency Fire Center, about 8.9 million acres burned in 2020 wildfires, which is a couple million more than the average over 10 years. At least 10,000 structures were destroyed in California alone.
As the frequency of climate-change-induced events like wildfires and the number of weather events like hurricanes increases, more claims will be filed. Changing weather patterns also mean that areas that weren’t prone to certain types of claims may be in the future, as many across the South found out when their waterlines froze this winter.
2. Higher-Amount Claims
One of the ways climate change is affecting weather is by dialing up the intensity of events. Blizzards are carrying more snow. Freezes are lasting longer. Hurricanes are picking up windspeed. Storm cells are spawning more tornados.
As weather events become stronger and/or more prolonged, they do more damage. This can result in more damage and increased claim values.
3. Rate Increases
With more and higher claims to be paid out, it’s a safe bet that insurance companies will keep seeking rate increases from state regulators. These will, of course, be passed along to consumers.
4. Policy Denials
Changing weather patterns are also likely to push more homes into the high-risk or uninsurable categories. Coastal homes are the obvious targets as sea levels rise, beaches erode and storms blowing in from the sea become more intense.
But they are not the only homes that may not be as insurable. Homes located in wooded or brushy areas or those built with inadequate insulation or flimsier building standards may also be denied coverage. Which brings us to our next point.
5. Risk Mitigation
It’s also possible that more insurers will offer policies with strings attached. “If you clear X number of trees from within X yards of your property, we’ll insure you,” or that kind of thing. Or an insurer may take a friendlier tone by offering discounts for homeowners who mitigate risk by taking similar steps. Either way, insurance companies may get nosier and pickier when it comes to choosing which consumers are eligible for certain coverages.
Insurance companies will certainly have to make many adjustments as climate change has a greater impact on weather patterns. You can be sure that as an insurance agent, communicating those changes will become an important part of your job. No one likes a rate increase. The more knowledgeable you are about why they are happening, the easier it will be for you to explain them in a way that consumers can understand.
When you sign up to receive fresh leads from Hometown Quotes, you also have access to a Regional Director, a successful former agent who can support you with tips to help you better communicate with your clients. Call us at 800.820.2981 to learn more.