Snow and arctic temperatures in Texas. Wildfires in California. Floods and wind storms in the Midwest. Tornadoes in Massachusetts. As weather and climate change-related disasters continue to grow, so does the cost of property insurance.

These disaster-related cost increases are not confined to the affected areas, however. That’s because most major insurance companies insure each other (via reinsurance) and have clients across the country. And while a risk of disaster is assessed for each location, the incredible mounting increases in damage claims over the past several years means many of those costs must be shared among all policy-holders.

In February, Willis Re, the reinsurance division of Willis Towers Watson, reported that insured losses from major natural catastrophes in 2020 reached roughly $78 billion, the fourth largest total since 2011 and about 17% higher than the 10-year average ($66.5 billion). Despite the limited impact of North Atlantic hurricanes during a very active season, the substantial total loss is attributable to “a series of small and medium-sized events.”

A Jan. 27 article in Insurance Business America reports that, “The cost of property insurance is expected to continue rising for the foreseeable future,” citing Risk Placement Services’ 2021 U.S. Property Market Outlook. The effects will be felt by every commercial insurance buyer, according to RPS — whether through higher premiums, less capacity, stricter terms, or all three.

“During the first half of the year, insureds can expect rate increases from the high single digits to the 15% range on clean accounts, and higher increases on accounts with losses,” the article states.

Workers’ compensation and cybersecurity
It’s just not natural disasters that are leading to insurance price hikes.

In its recently published outlook for the commercial property/casualty market for the fourth quarter of this year and the first half of 2021, USI Insurance Services LLC forecasts that workers’ compensation could increase by as much as 5%. Much of the activity in that area arises from COVID-19 claims, according to Willis Towers Watson’s 2021 Insurance Marketplace Realities.

Another area where claims have grown is cybersecurity. Almost 75% of cyber insurance claims involved an insuring clause related to breach incident response and crisis management. Data privacy breaches represented the second-most common insuring cause, followed by cyber extortion. North America ranked second in the world with 33% of all cyber incidents in 2019.

Ransomware has emerged as the most common cybersecurity incident cited in reported claims (41%), and the average ransom demand has increased from an estimated $230,000 in the first quarter of 2020 to nearly $339,000, according to research from Coalition, a top cyber insurance provider.

Last September, Standard & Poor’s reported that cyber insurance premiums, which now total about $5 billion annually, will increase 20% to 30% per year on average in the near future.

Looking ahead
In its total insurance industry recap, Risk Placement Services expects the following trends for the insurance market in 2021:
• Every commercial property insurance buyer will feel the effect of a firming market.
• Reinsurance will play a larger part in pricing terms than in the years past.
• Rate increases can be expected in the high-single digits to 15% range on clean accounts, and higher on accounts with losses.
• Catastrophe deductibles will be converted from flat dollar amounts to percentages, with percentages increasing from 2% to as high as 5% in some areas.
• Multiple insurers will be needed to assemble higher excess coverage limits.
• New communicable disease and riot exclusions will be introduced.

As municipalities engage in the budget planning season, they are advised to consult with all their insurance providers to ensure that their coverage is better than adequate and that their budget is prepared for anticipated hikes in premium costs.

Rising insurance costs can be managed by a full risk assessment across all exposures, locations and operations. Local officials are advised to evaluate all coverages, limits, deductibles and retentions. The end goal should be a strategy for each line of coverage, where pricing, terms and conditions are adjusted for the current environment, and with an eye toward ongoing monitoring for the foreseeable future.

Written by Joyce McMahon