Property insurers adapt rapidly to strong market forces

Pandemic and recession and storms. Oh, my. The trifecta of troubles has been all too familiar for Corridor business leaders of late, and while nearly every sector has struggled to adapt to a host of changes, perhaps none has needed to pivot more frequently than the insurance industry, with challenges ranging from changing technology and rising claims to increasing premiums and scarcity of materials to recover from insurance losses – particularly in the property and casualty insurance realm.

Corey Rekers, partner and director of property and casualty sales with the Accel Group in Cedar Rapids, said the sudden advent of work-from-home practices, necessitated by the COVID-19 pandemic, forced rapid adjustments by insurers and business clients alike. “Remote work was a challenge for everyone, not just the insurance industry,” Mr. Rekers said. “I know certain carriers haven’t even brought all their people back (to the office). But we learned as an industry that we can most definitely work and serve clients remotely. We can pivot that way, we can adapt to a new normal, and I think the industry, as a result, has sped up technology-wise. What might have taken years has (accelerated) into months.” In fact, Mr. Rekers said, because of greater efficiency facilitated by technological advances, his team has recently added a group of in-house data analysts “to mine data and figure out trends to better serve our clients. That may not have been in the cards before. We’ve definitely changed how we operate not only due to COVID, but due to changes that the carriers have put on us recently.” Those changes, Mr. Rekers added, have included expectations for nearly instantaneous quotes on insurance plans. “A lot of them will expect you to quote things online now, whereas before we would fill out forms and shoot them off to different carriers,” he said. “There are a lot of online rater systems we utilize. The expectation that we use technology is now greater. Being able to adapt to change is a big thing that we’re focusing on as a whole in the industry.”

Terry McDonald, executive vice president of Relion Insurance Solutions in Iowa City, agreed that the pace of innovation is revolutionizing the world of insurance. “It’s definitely having a positive impact,” he said. “Before, you had to get the policies, print them out, put them in binders. With COVID, those days are gone. It forced the insurance companies out of some of the archaic ways they were doing business to meet customer demand. I would much rather have my insurance policy on my computer, so if I have, let’s say water damage, I can type in ‘water damage’ and bring up just those pages, out of 300 pages (in the policy), that deal with water damage.” Ongoing climate change — as exemplified not only by two hailstorms and a derecho in Eastern Iowa in 2020, but in high-impact hurricanes, ice storms and other destructive weather events – have altered insurers’ business practices as well. Mr. McDonald noted that “one particular insurance company” experienced $170 million in claims from the Aug. 10 derecho alone, and in some manner, those claim costs must be recouped. “Insurance companies buy insurance themselves, from reinsurance companies,” he said. “They renegotiate those rates every year. So you take that company that had $170 million in claims, the impact to that company was only $10 million because they were insured for the rest. But the next year, those reinsurance companies start taking a deeper dive, saying ‘the past five to 10 years, with the Midwest weather pattern changes, it’s costing us a lot of money.’ So they’re raising [property insurance] rates exponentially, and they’re putting large deductibles on roofs to help mitigate their losses. I just did a quote on a $1.9 million building, and the deductible is $38,000. So you might as well say you don’t have any wind or hail (insurance) on your roof at all.” Another growing issue, rising construction costs, can also make it challenging for property and casualty business clients to adequately insure their facilities, particularly in the case of large-scale losses, such as the derecho.

“For home insurance, you’d have a lot of what I would call ancillary benefits,” said Spencer Stephens, vice president of Sheets Forrest Draper Insurance in Marion. “If you had a replacement cost of $300,000, a homeowner’s policy might have a specific rider for additional coverage, so if building costs do go up, that difference can be picked up under those riders. “The problem that we’re seeing,” he added, “is with these building costs going up, we’re having to increase the replacement cost on insurance. You’re basically having to buy more coverage, but the rates are also going up, so there’s a double whammy. Fortunately, Iowa does have some of the least expensive insurance rates in the country, but with what we’re seeing here, we’re going to see rates going up here for at least the next couple of years.” And the riders issued on residential policies aren’t always available for business clients, Mr. Stephens said. “The contractual language is different than a homeowner’s policy,” he said. “We’ve started dealing with coinsurance, which basically says ‘what did you have your building insured for versus what should your building have been insured for,’ and if that ratio doesn’t match your coinsurance percentage, you can be penalized and not get those full costs to replace or repair your property after a claim. It’s a delicate balance of insuring costs versus coverage. Business owners are constantly weighing, what’s my risk tolerance? What should my out-of-pocket be? Do I go with a higher deductible? Do I want to go with that agreed value, so I don’t have to worry about coinsurance? There’s a lot more levers to pull on the commercial insurance versus the personal side, which can be beneficial, but it can definitely be riskier if you don’t know what you’re purchasing.” As the volume of insurance claims has soared and premiums have risen, the industry has often been the brunt of public criticism, Mr. Stephens said. But it’s important to remember, he added, that the industry has faced its own challenges. “Insurance companies are just businesses, and nobody wants to lose money,” he said. “When we talk about insurance, there’s a common bad rap of ‘you’re not going to pay my claim because you’re just going to keep all the money.’ I think that’s a bad stigma that insurance companies get. After the (derecho), we had some instances where adjusters were a little bit overwhelmed, and it was tough to respond as quickly as everybody needed to get their properties back in order. But for the most part, I think things have gone fairly well. There’s going to be those handful of instances that go sideways, but it’s just being there to help clients manage that process and really advocate for them, to make sure that they’re getting everything they’ve paid for under an insurance policy.”