Address

230 W. Monroe St., Ste. 2525

Chicago, IL 60606

Get in touch

Sorry, America, Your Insurance Has Been Cancelled

bcuinsurancerisk • August 30, 2022

Introduction

On March 24, 1986, Time Magazine’s cover article was titled “Sorry, America, Your Insurance Has Been Cancelled.” The article referenced the collapse of the U.S. commercial liability insurance market – principally associated with run-away inflation and the bursting of a historically high interest rate bubble.

Today, the U.S. insurance market finds itself again in distress. In some ways the market dynamics appear similar at first glance to the 1980’s (e.g. inflation); however, these days there are altogether new headwinds affecting the U.S. insurance market. The consistent severity of insured catastrophe losses, combined with tighter insurance regulation limiting insurance companies’ ability to freely manage their rates and rules, has expanded the insurance crisis beyond commercial liability to now include the individual property market – homeowners.

This update will address the main pressures facing the U.S. property and casualty insurance market and more specifically, how these pressures are affecting our individual family and family office clients.

Catastrophe Losses

Catastrophe losses, defined as an event causing significant insured property loss that impacts a large number of policyholders and insurance companies, have increased in both frequency and severity over the past 5 years. Common causes of catastrophe losses have expanded beyond gulf/mid-Atlantic hurricanes and California earthquakes to now consistently include wildfires and strong convective southeastern and midwestern U.S. storms. This graph below shows the total insured property losses associated with natural catastrophe losses over the past 10 years. It is notable that in the 5 years between 2012 – 2016, the average annual U.S. insured total catastrophe loss amount was roughly $30B/year. In the 5 years between 2017 – 2021, this annual average has increased exponentially to over $80B/year.

Increased western wildfire and storm related wind/hail events, combined with increased population density in locations where these types of events tend to occur, are two of the principal drivers behind the severity increase over the past 5 years.

Wildfires and the West

Due mostly to dry brush conditions associated with the prolonged drought currently affecting the Western U.S. states, property damage associated with Western U.S. wildland fires have shown an alarming trend line over the past 5 years. Of the top 10 costliest wildland fires in the U.S, 8 have occurred since 2017 (Fig.1). The other wildfires to make the top 10 list occurred in 2007 and 1991.

Additionally, most U.S. states with the greatest risk of wildland fires have also seen population density increases in areas specifically defined as being exposed to wildland fires. States such as Montana and Idaho have seen such population growth that over a quarter of the properties in the state are exposed to a potential wildfire catastrophe (Fig. 2).

Inflation Behind the Curtain

Inflation associated with property construction costs (materials and labor) has been widely reported for the past several years. These inflated building costs drive higher reconstruction claim expenses for insurance companies, but this only tells half of the inflation story. Driven by the increase in U.S. catastrophe losses over the past 5 years, the cost of reinsurance, insurance purchased by all insurance companies in order to expand their ability to assume risk, is increasing significantly. Since 2018, the cost of U.S. property catastrophe reinsurance has increased over 40%, which in turn adds higher policy expense costs to insurance companies already digesting higher catastrophe underwriting losses.

Additionally, in many states, insurance companies are limited in their ability to pass along these higher loss and reinsurance costs to the consumer due to tight insurance regulation. California’s Proposition 103, passed in 1988, makes it very difficult for homeowner insurance companies doing business in California to raise premiums in order to offset higher reinsurance expenses and claim losses. As a result, in 2022, most California property insurance companies are no longer writing new business and some are actively non-renewing existing customers in wildfire exposed areas. California homeowners are increasingly being left with fewer homeowner insurance options and often have to settle for more expensive, less-regulated insurance policies. Similar to California, in 2023, we anticipate other Western U.S. states to become much more difficult with respect to affordable and available homeowner insurance.

Conclusion

Pricing pressure and limited product availability will continue to plague high value property insurance consumers. Pockets of extreme distress developing in states like California and other western states, severely restricting the availability of affordable property insurance, will continue to expand in 2023, and likely 2024. We are encouraging our clients making property purchases in wildfire exposed western states to not delay investigating their insurance options, as homeowner insurance in these areas is becoming a much more material consideration.

Headquartered in Chicago, BCU Risk Advisors is an independent insurance brokerage and consulting firm, serving ultra-high net worth families, Family Offices and Multi-Family Offices. Founded in 2007, BCU is licensed in 50 U.S. States.

< Older Post

Newer Post >

2025 Insights: Navigating the Year Ahead

December 26, 2024

At BCU Risk Advisors, we’re dedicated to safeguarding the legacies of successful individuals and families. The personal insurance landscape continues to evolve, with rising costs, emerging threats, and shifting market dynamics shaping the way we manage risk. As we look ahead to 2025, our commitment remains the same: to deliver proactive, customized insurance solutions tailored to our clients unique needs. Key Trends in 2025 1. Rising Costs and Market Adaptations Premium Increases: Homeowners (+10-12%), Auto (+8-10%), and Umbrella (+10-15%) premiums continue to rise, driven by inflation, labor costs, and social inflation. Capacity and Creative Solutions: Insurers are reducing coverage in high-risk areas, while non-admitted (E&S) markets are stepping in to offer innovative alternatives. Higher deductibles and self-insurance are also becoming common strategies. 2. Emerging Risks Cyber Threats : With global cybercrime costs projected to reach $10.5 trillion by 2025, affluent families face growing risks, from ransomware to identity theft. Natural Disasters: The increasing frequency and severity of hurricanes, wildfires, and flooding call for enhanced disaster preparedness and specialized coverage. Liability Exposures: Social inflation continues to drive increased payouts for lawsuits, making robust umbrella policies critical. 3. Specialized Coverage Needs High-Value Collectibles: Proper valuation and protection for items like fine art, rare wine collections, and antiques is more important than ever. Travel Risks: International travel brings exposures like theft and medical emergencies, highlighting the need for tailored travel insurance solutions. 4. Generational Wealth and Estate Planning Federal Tax Changes: With estate tax exemptions set to drop in 2026, families must prepare for potential impacts on wealth transfer strategies. Educating Heirs: Younger generations require guidance in risk management to ensure their legacy is preserved. BCU Risk Advisors: Your Trusted Partner in Risk Management Comprehensive Coverage Tailored to You We specialize in creating customized insurance solutions that reflect unique lifestyle, assets, and goals. From safeguarding high-value homes and collectibles to protecting against liability exposures, our strategies are designed to evolve with our client’s needs. Proactive Risk Management By emphasizing prevention, we help our clients avoid claims before they occur. This includes installing water shut-off systems, disaster-resistant landscaping, and utilizing advanced cybersecurity measures. Collaborative Approach We work closely with wealth managers, estate planners, and legal advisors to integrate insurance seamlessly into our clients broader financial strategies, ensuring assets and legacies are fully protected. 2025 Recommendations for Families 1. Annual Policy Reviews: Regularly review your policies to address new exposures, lifestyle changes, and market shifts. 2. Invest in Risk Mitigation: Measures like installing leak detectors and upgrading cybersecurity systems can reduce risk and improve insurability. 3. Enhance Coverage: Robust umbrella policies, flood insurance, and cyber coverage are essential for comprehensive protection. 4. Prepare for Wealth Transfer: Engage experts to navigate tax changes, ensure accurate valuations, and educate heirs on managing inherited assets. Why BCU? Our relentless focus on service, risk mitigation, and relationship building has earned the trust of over 1,500 families across all 50 states. By leveraging our carrier partnerships, we consistently deliver comprehensive coverage at competitive rates. Conclusion As 2025 unfolds, the personal insurance market will continue to challenge and evolve. With BCU Risk Advisors by your side, you and your clients can face these changes with confidence, knowing assets are protected, risks are mitigated, and families are secure. Contact us today to learn how we can support your personal insurance needs and help you navigate the year ahead.

HNW INSURANCE MARKET NOTES- DEC 2024

December 16, 2024

HNW INSURANCE MARKET NOTES- NOV 2024

November 15, 2024

HNW INSURANCE MARKET NOTES- OCT 2024

October 15, 2024

HNW INSURANCE MARKET NOTES- SEPT 2024

September 15, 2024

HNW INSURANCE MARKET NOTES- AUGUST 2024

August 15, 2024

Understanding the Risks of Wood Roofs

August 1, 2024

Understanding the Risks of Wood Roofs: What Insurance Carriers Need You to Know

Preserving Peace of Mind

July 31, 2024

The Power of a Home Inventory Video Imagine this: You’ve spent years building a home filled with cherished possessions, from your grandmother’s antique vase to your latest tech gadget. Suddenly, disaster strikes. A fire, a burglary, or a natural calamity – the result is the same: your precious items are gone. Amid the chaos, the last thing you want to do is try to remember every single item you owned. This is where a home inventory video becomes invaluable. The Emotional Toll of Loss Experiencing a significant loss can be emotionally devastating. It's not just about the monetary value of the items lost but the memories and sentiments attached to them. Recalling every possession under stress is nearly impossible, and the process can be heart-wrenching. By creating a home inventory video, you can ease this burden, ensuring you have a detailed record of your belongings when you need it most. Steps to Create Your Home Inventory Video 1. Preparation Start by gathering your equipment. A smartphone or a video camera will do the job. Walk through your home, ensuring all lights are on for clear visibility. For dark corners, use a flashlight or the light on your smartphone. 2. Filming Begin with a Sweep: Start with a general sweep of each room to set the scene. Detailed Description: Open all drawers, closets, and cabinets. As you film, describe each item briefly. For example, say, “a set of 12 forks and spoons” rather than filming each one individually. For particularly valuable or unique items, take more time. Pick them up and hold them close to the camera, explaining their significance and details. 3. Storing Your Video Once your video is complete, store it safely. Back it up in multiple places: an external hard drive, the cloud, or even with your insurance agent. This ensures you have access to it when needed. 4. Updating Your Inventory Regularly update your inventory, especially after making significant purchases. Set a reminder to review and update your inventory annually. The Practical Benefits A home inventory video not only helps you remember what you had but also speeds up the claims process. Insurance companies appreciate detailed records, and a video can serve as indisputable proof of your possessions. This can be the difference between a smooth, swift claim process and a prolonged, stressful one. Creating a home inventory video might take a bit of time, but the peace of mind it offers is invaluable. Don’t wait for the unexpected. Start filming today to ensure you and your family are prepared for whatever comes your way. Your future self will thank you!

HNW INSURANCE MARKET NOTES- JULY 2024

July 15, 2024

The latest update in the high net worth insurance market highlights significant changes impacting policyholders. Florida's state-backed insurer secures $3.56 billion in reinsurance for the hurricane season, while Allstate proposes a 34% rate hike for California homeowners. The post also discusses the alarming rise in distracted driving among Gen Z, increasing by 24% from 2022.

Real-Life Claims Stories: The Importance of Comprehensive Flood Insurance

July 2, 2024

Flooding isn’t just a coastal issue; it can impact homes anywhere. From heavy rain to unexpected storms, non-coastal regions can experience severe flood damage that leads to costly repairs. This makes comprehensive flood insurance essential for homeowners. To highlight the importance of this coverage, let's look at some real-life examples from Chubb's latest claims stories. Reclaiming a Home Submerged by the Storm An intense storm hit a non-coastal town, causing a nearby river to overflow. The resulting floodwater pushed open a home's basement door, inundating the interior. The water damaged carpets, drywall, insulation, paint, cabinets, baseboards, and even a pool table and family heirloom furniture. Chubb quickly assessed the damage and confirmed coverage under the client’s flood policy, enabling prompt restoration and recovery. Chubb claim payment: $227K Underwater and Undeterred: Rebuilding After a Hurricane A hurricane brought heavy rain to another non-coastal area, submerging homes in water. One client's unfinished basement suffered extensive damage, necessitating the replacement of flooring, the hot water tank, furnace, and electrical panel. The first floor required new hardwood and tile flooring, kitchen appliances, cabinets, and plaster walls due to elevated moisture levels. The garage's overhead door was also destroyed. Chubb responded promptly, recognizing the damage and providing an estimate to start repairs immediately. Chubb claim payment: $300K These stories demonstrate the value of having comprehensive flood insurance and the commitment of Chubb to support their clients through significant losses. For more detailed examples and to understand the difference Chubb’s claims service can make, download the full brochure below and visit Chubb's website . Ensure you’re protected against unexpected events. Contact BCU Risk Advisors to discuss your insurance needs and secure comprehensive coverage today.