No matter how smart we become or how much data we collect, surprises are imminent. We cannot predict everything, we cannot prevent every bad thing from happening. This COVID-19 is a prime example of that. Mother Nature also has a wicked side to her.
Flooding, Wildfires, Hurricanes, Earthquakes, Volcanoes, Hailstorms, Plow Winds, Tornados, Ice Storms.
As humans, we learn, change, adapt to these situations and that helps us be more prepared moving forward. For example: In construction, building codes have changed dramatically in the past 50 years, to help prevent fire losses with the use of better material, wiring, automatic breakers, smoke detectors, along with the quicker response and better equipment from local fire departments, etc.
However, these large catastrophic losses come without warning and have serious repercussions: Slave Lake Wildfire, Calgary Flood, Fort McMurray Fire and the more recent Ice Jam/Flood this spring.
There are a few things that insurance companies put in place during and after these events that affect us. When a “State of Emergency” is declared, Insurance companies limit what insurance agents and brokers are able to insure. They reduce our “binding authority” and require additional information on the risk and sometimes reject insurance on certain areas depending on the circumstances. For example, if there is an ongoing wildfire, most insurance companies put a radius restriction on any new insurance. If you wanted to insure a cabin or home and your property was within 50km of the wildfire, you would likely be unable to insure it. This radius restriction varies from insurance company to insurance company, and some may reject insuring the risk entirely based on GPS coordinates.
Therefore, it is always important to carry insurance PRIOR to any potential loss. We cannot backdate insurance. If this was possible, insurance wouldn’t exist as they would all be out of money. You need to buy insurance while things are good in hope for nothing bad to happen. And if it does, you’ll survive financially, because you were prepared and have the proper protection in place.
The next thing insurance companies will do, is after the dust settles from a catastrophe, they study the data. They study trends, locations, risks, behaviours, construction details, etc., and come up with a strategic plan on what they will be doing in the future. If claims costs surpass revenue, they will have to make changes. Rates will increase, appetites will change, and this is usually when a hard market surfaces.
So what is a “hard market?”
A hard insurance market represents a high demand for insurance coverage with a low supply. Insurance carriers implement strict underwriting standards and issue a limited number of policies. Premiums are high and insurers are disinclined to negotiate terms.
As most of you may have noticed, insurance premiums continue to rise and the requirements insurers ask for, have become more and more demanding. That is because we are in the middle of a hard market. High claims costs from CAT losses, combined with the high value claims in the auto sector (hail losses and higher costs to repair due to technology/sensors in vehicles), has caused insurance companies to struggle and make changes. Therefore, it is more difficult to buy insurance and the price continues to rise.
As much as we don’t want to believe it, our insurance rates that we pay, are based on our own property, claims and behaviour, IN ADDITION to the claims and losses of others. That is the foundation of insurance. We pool money together to help those who suffer from unfortunate circumstances.
So what happens next?
Our hope is that these weather related CAT losses taper off (hard to predict), and claims related to human error can be predicted, corrected & prevented. The COVID-19 crisis has reduced auto related risks as fewer people are driving, so that may result in lesser claims and potential revenue for insurance companies. (cross fingers)
We never can predict what the future brings, but we can plan for the worst and hope for the best. We buy our insurance ahead of time, we build or repair our homes stronger with better material, use better equipment and HOPEFULLY we reduce or maybe even eliminate the possibility of a claim from arising. If we each do our part, we can make the future brighter.