Why are insurers trying to avoid their exposure to risk?

By David Baxter, Chief PPP Advisor

The Washington Post reports that at least five large U.S. property insurers including Allstate, American Family Insurance, Nationwide, Erie Insurance Group and Berkshire Hathaway — have told regulators that extreme weather patterns caused by climate change have led them to stop writing coverages in some regions, exclude protections from various weather events and raise monthly premiums and deductibles.

U.S. insurers have disbursed $295.8 billion in natural disaster claims over the past three years, according to international risk management firm Aon. That’s a record for a three-year period, according to the American Property Casualty Insurance Association. The resulting escalation in insurance claims is causing a major shakeup in the insurance industry. The reason for this is simple – insurance companies are in the business of pricing to risk and it is becoming increasingly evident that insurer’s prices are increasingly unable to match risks.”

It is further reported that major insurers say they will cut out damage caused by hurricanes, wind and hail from policies underwriting property along coastlines and in wildfire country, according to a voluntary survey conducted by the National Association of Insurance Commissioners (NAIC) Commissioners, a group of state officials who regulate rates and policy forms.

Unfortunately, it is reported that insurance providers are also more willing to drop existing policies in some locales as they become more vulnerable to natural disasters. They are allowed to do this as most home insurance coverages are annual terms, so providers are not bound to them for more than one year. The consequence of this is that individuals and families in places once considered safe from natural catastrophes could lose crucial insurance protections while their natural disaster exposure expands or intensifies as global temperatures rise.

This insurance trend will also have consequences for infrastructure and property developers, especially projects considered for PPPs.

The only way to mitigate risk and lower risk insurance exposure is to introduce new strategies, policies, and guidance that embrace sustainability and resilience.

Should you wish to know more about how to mitigate property risk, feel free to reach out to us at the International Sustainable Resilience Center.

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