Why are we so optimistic about the current personal insurance market?

It is the hardest personal insurance market in a generation. Unfortunately, that isn’t an opinion but indeed a fact. And as a result, the personal insurance industry is going through a rollercoaster of a ride. What's causing all this turbulence? Well, a big part of it is the catastrophic losses stemming from natural disasters and bomb verdicts settlements contributing to social inflation but these factors are just the tip of the iceberg. As a result, we're seeing two significant trends emerge. In this blog post we will review these trends and share three reasons why we are very optimistic about the current state of the personal insurance market that primarily serves the high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals and families.

First, in many cases, personal insurance premiums are skyrocketing. You may have noticed increased premiums on your renewal. On average by more than 9% nationwide, with some states such as Florida, seeing 66% increase. Premiums have gone up in part because reconstruction and rebuilding costs have increased 55% since 2019, and reinsurance has increased by 30-40%. Other factors include:

• Inflation + material costs - According to the labor of statistics, $1 in 2020 now costs $1.78 in 2023. While inflation has been gradually easing over the past year to 3.2% as of August 2023, it hit a 40-year high of 9.1% in June 2022. As a result, material costs have increased 7.8% from 2022 to 2023.

• Supply chain issues + labor shortages - Lingering supply chain issues and labor shortages, as well as rising cost of labor, have impacted insurance costs as well. Specifically, labor and luxury materials. Customers are out of their homes and autos longer, prolonging displacement and adding to rental and out of pocket, increasing overall claims. In certain area of the Northeast, particularly in cities, the cost of to rebuild is surpassing $500-$600/sq foot.

• An increase in catastrophic weather events - The total costs from the events of 2022 was $165.1 billion. It was the third most costly year on record. Before 2017, the average number of severe weather events in the US was only 8 events a year. The average e between 2017-2022 was 18 events per year. Both insurance and reinsurance looks at nationwide risk and adjust rates based on the whole.

• Reinsurance rate increases - Reinsurance, which is insurance for insurers to back their risk in the event of major catastrophes, have increased by 30-40% on average this year. Reinsurers are less willing to back high-risk market such as FLA. Or they have increased prices so much that insurers struggle to buy all the reinsurance they need. The cost of securing this necessary layer of protection is passed on to the consumer and adds to the overall cost of insurance. Reinsurance rate hikes are often a “hidden” impact to insurers that customers do not see but feel in their rates.

• Technology - U.S. Modern technology and features in homes and cars has made it more expensive to repair, rebuild, or replace them when there is a loss. For example: the cost to replace a windshield has gone from $400 to over $1000+. Technology such as rain-sensing wipers, and driver assistance systems like automatic breaking, adaptive cruise control, and camera sensors, has increased the time and labor costs.

Second, it's becoming harder to find insurance coverage. These challenges have led some insurance companies to stop offering new policies, cancel existing ones in specific states, or even pull out of certain product lines or states entirely.

• Admitted Market Struggles - Insurance is highly regulated by our state departments. All insurance rates are approved by the state. Insurers must submit their rates and coverages to the state for approval. The state then backs claims from that insurer to a limit, if the insurer were to go bankrupt and not be able to pay their claims. Admitted rates are based on trends over decades, but the rapid economic changes since 2020 outpaced regulation. Personal lines insurance faced difficulties getting adequate rates for risk under the admitted market. For example: In California, wildfire coverage is required on admitted policies. Insurers cannot get an adequate rate to compensate for high wildfire risks. As a result, insurers have sharply increased premiums, limited capacity, of pulled out of certain markets all together. If you are interested in learning more about this topic, we wrote a separate blog post about it. You can read it here.

BUT, given all of this: We are Optimistic.

While there have been major challenges over the past couple of year, there is a silver lining, an opportunity, and call to action. You too can become an optimistic about your insurance. There are cost saving actions and priorities you can take to protect your most valuable assets.

Frist, there is more competition in the HNW and UHNW space today then there has ever been. There has been a lot disruption with insurance carrier mergers and acquisitions. As a result, the marketplace has more than doubled in the past five years. This has led to market competition where consumers have the opportunity to obtain more and broader coverage at a reduced premium. Giving more options and shifting the power back to the customer.

Second, the insurance carriers that are in the personal affluent space have created solutions. Most HNW and UHNW insurance carriers are responding and creating alternative solutions in the Excess and Surplus market. Excess and surplus lines (also referred to as “E&S”) are tools for high-net-worth customers who have exhausted their options through the admitted market. E&S allows your policy to adapt to rapidly changing conditions. The main disadvantage to E&S is that it’s not backed by the state’s insurance guaranty fund or association. You should only consider and work with insures who have a strong AM Best rating, as well as high reinsurance rating and ample capital to insure complex risks. If you are working with a solid insurance carrier there are benefits. Advantages include flexibility and creativity tailored to the risk, customizable coverage, limits and pricing, speed to market.

Third, and most important - Broker relationships are key. The advocacy and education provde by working with a broker who is an expert in the insurance industry, with a special focus and expertise in the HNW and UHNW in is paramount. Now more than ever, private clients need education and guidance on balancing the insurance equation. More than 56% of the personal lines marketplace purchases their insurance directly through insurance carriers. This means that consumers are choosing to forgo working with a trusted insurance professional. The problem with this, is that insurance is complicated. You are most likely being undersold leaving yourself at risk.

We promise you will never look at your insurance the same way again.

We are truly optimistic and excited about the state of the personal insurance market. Don’t leave your financial wellbeing to an insurance TV commercial ad that caught your attention, or with a broker that ghosted you years ago. If you don’t know their name, and if they are not calling you back, it’s time to reevaluate your relationship with them. By working with a trusted professional in the space you are less likely to experience non-renewals, significant premium increases, and large losses.

Work with us. How NaVella is different:  

NaVella was created out of equal parts love and frustration with the insurance industry, its complexities, and the ever-evolving market space. We are on a mission to over deliver and work with the most exclusive high-value insurance carriers in the world.  

With more than 17 years of experience in multiple facets of this industry, 1000+ insurance  policies analyzed and reviewed, and hundreds of customized insurance portfolios crafted, we  are dedicated to giving you control over what and how you protect what you care about most.  

We are a woman-owned, progressive, independent insurance agency and consulting firm. We  offer personal lines insurance solutions. Our product solutions include insurance for your:  Home(s), auto(s), collection(s), Excess + Umbrella, boat, and term life. Our consulting and  coaching services serve both personal and corporate clients. Headquartered in Massachusetts,  and primarily focused on the Massachusetts and greater New England markets, we can write  nationally. 

If you’re ready to protect yourself now and in the years to come, please visit us at  www.navellains.com, email us at hello@navellains.com, or call us at 617.399.3124. 

Feel good about your insurance. Partner with us.