The insurance industry is one of the oldest international markets ever established. Back in 1688 in a coffee shop in England men would bid on a portion of a trading trip they were willing to finance. The risk was spread over several people, should the trip go bad. The Coffee Shop was Lloyd’s coffee shop and the trade routes were to the America’s, and the Far East. The coffee shop grew up into Lloyd’s of London.
So that is how insurance became a global industry and this is why Japans horrific earthquake is important to you. Insurance companies worldwide buy insurance from Re-Insurers such as Munich Re, Gen Re and Lloyd’ Re. These re-insurers are truly global and when the largest insured event of all time occurs in Japan the risk is spread out globally to assist in the rebuilding.
2011 was very significant to the insurance industry because of the many nearly worst case claims scenarios that were experienced. Insurance rates are influenced by several factors, but claims history and claims forecast are 2 of the more significant. The claims factors can influence on a local level, national level, and global level. So let’s take a quick look at 2011 and see what has influenced the insurance industry in our near future.
Locally, in Missouri, we have had 5 significant catastrophe losses. A Catastrophe is a loss that causes more than 10 Million in Damage. The Joplin Tornado has been the worst of the 5. The Joplin tornado is forecast to cost about 2 billion alone.
On a national level the Alabama tornado outbreak of over 200 tornadoes is now one of the top 10 costliest catastrophes in U.S. History. That puts it with major hurricanes such as Hugo, Andrew, and Katrina.
Finally, global catastrophes that included both the Japan earthquake and the Christ Church, New Zealand earthquake have combined to make the first part of 2011 surpass re-insurers annual catastrophe budget in just 6 months. The estimate for insured losses worldwide for 2011 is $105 Billion!
I know this is a lot of information but I feel it is important for purchasers of insurance to prepare for significant rate increases of 10 to 20% over the next one to two years. Many companies have already started taking these rate increases and they have also started making other significant changes. Some insurance companies are moving to “split deductibles”. A “Split Deductible” is where you may have a deductible of $500 to $1,000 but then may have a separate Wind/Hail deductible of $1500, $2500, or 1% or 2% or even 5% of coverage A, (amount of dwelling coverage). The percentage deductibles are often misunderstood as a percentage of a loss, but make no mistake; they are a percentage of the total dwelling value. A $200,000 home could have a Wind/Hail Deductible of $4,000.
SO WHAT SHOULD YOU DO? 1. Read over your declarations page every year. If you do not understand it call your agent and make them explain it. If you do not want to do that call my office and we will assist you. These split deductibles are not necessarily bad, but they could be unaffordable if you are not prepared for it.
2. Call and get other quote and compare. If you deal with an independent agent other quotes may be a simple as calling and asking for a re-quote. If you deal with captive insurers the process will take a little longer but could still save you thousands.
3. Realize your contract is for one year, not a lifetime. Many people do not shop their insurance because they have been with XYZ insurance company for 20 years. That mentality will not help you at claim time because they are still going to follow the contract especially while money is tight. Regardless of what an insurance company or an agent representative says, the insurance contract is what dictates payment after a loss.
I hope this information helps, and on an ending note: Please try to understand your policy for any insurance product before a loss occurs, because afterward it is too late to make changes.