“Between Harvey, Irma and Maria, the homeowner insurance market really began to take a different position and harden,” said Fernando Alvarez, partner at JAG Insurance Group. “It’s the same shippers and reinsurers writing in disaster-prone areas like Florida, Texas, and Puerto Rico, and so all of those claims came in – probably hundreds of thousands of them – but they didn’t really hit the bottom until about two or three years later. When these insurance companies really saw what they were paying out for claims, they thought it was time to charge a higher rate for actual risk. “
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One area where homeowner insurance companies are gradually tightening is in determining replacement costs, according to Alvarez. They want to make sure that the price per square foot is reasonable, and not just some believe they are paying and that they are collecting the reasonable premium for the risk. This has resulted in some homeowners having to pay more premiums to get more coverage, although their rate may have stayed the same.
“You really want to make sure that homeowners are not underinsured because if they are, it will be the insurers who will have to pay the full replacement cost at the time of the damage,” Alvarez told Insurance Business. “The last thing an insurance company wants is to underinsure a home for $ 200,000 and then get into a lawsuit where the home replacement cost is actually $ 300,000. There is a possibility that the insurance company may have to pay out $ 300,000 even though it only collected a premium of $ 200,000 because the policy promises replacement costs. “
Insurers are also tightening the limits they want to offer for coverage for water damage. This is something that, according to Alvarez, air carriers “pay close attention” to the fact that there are far more flood / water damage incidents in the Sunshine State than wind and hurricane damage.
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“I believe that Artificial Intelligence (AI) continues to be the driving force behind rates at these homeowners’ insurance companies,” added Alvarez. “They spend billions of dollars on software engineering programs that can identify the current design features that drive these pricing models. Unfortunately, there isn’t much transparency about this data, even for the insurance agents trying to sell policies at higher rates.
“With that in mind, it seems common sense to say that ‘year of construction’ seems to be an element of data that really determines the rate. If you buy an older home – even if you change the electrics, plumbing, HVAC system, and roof and bring everything up to date – you are still not getting the price you would get if you were buying a new home At home. I’ve seen cases where new builds are 50% or 60% less – it’s an exaggerated difference that makes life difficult for insurance agents. “
When faced with such challenges, agents need to have good conversations with the insured and train them as well as possible through regular market updates. Alvarez emphasized: “Unfortunately there is no clear way how this can be communicated to the insured. You are never happy to pay more premium. “He also advised agents to encourage homeowners to invest in flood and storm risk mitigation and to ensure that their investment is listed on the insurance policy. He stressed, “Agents need to ensure that their policyholders understand the importance of conducting a storm containment inspection and that there is evidence.”
According to Alvarez, the insurance market for homeowners in Florida is likely to remain tough through 2021, partly due to another active hurricane season in the North Atlantic this year, ongoing political uncertainties and the economic impact of the COVID-19 pandemic. “It’s not that there’s no money out there, however,” he said. “The markets are indeed highly capitalized when you look at them closely.”