After the onset of COVID- 19, finan- cial advisors were faced with an unprecedented challenge: helpclients navigate economic uncertaintybrought on by a global pandemic. Amid allthe unknowns, advisors became trustedconfidants and relied on their knowledgeof previous market volatility to guide clients through uncharted territory.
Now, just over a year later, financialadvisors are stepping up to the plate again,helping clients understand their fiscaloutlook in a post-pandemic world. Tohelp maximize clients’ financial futures,it’s critical for financial advisors to maintain a holistic view of the factors that canimpact their clients’ overall wealth management strategies — including insurancecoverage and associated price.
According to a recent report fromMarketScout, the composite rate forpersonal lines insurance — that is anykind of insurance that covers individualsagainst loss that results from death, injury,or loss of property — increased by 6.3% inQ4 2020. But affluent homeowners seemto be the most impacted, as those whoown properties worth more than $1mil-lion saw average rate increases of 8.2%.Depending on clients’ exposure to certaintypes of losses, for example hurricanes orwildfires, and/or loss experience as wellas other rating factors, increases could bemuch steeper in the current environment.
As advisors look to guide clients goingforward, here’s what they need to knowabout the hardening insurance market.
RATE INCREASE DRIVERS: IT’S NOT
JUST COVID- 19
Several elements are contributing to
the rate increases in the personal lines
insurance market, pandemic-related
To start with pandemic-related behaviors, take recent changes in driving. Dueto government-imposed stay-at-homeorders earlier in the pandemic, fewer people were on the road — but those whowere driving tended to engage in riskierbehaviors. According to a study conductedby the National Highway Traffic SafetyAdministration (NHTSA), people werefound to be less likely to adhere to evensimple safety measures like wearing a seat-belt during the early days of the pandemic.Notably, the NHTSA found that the rateof passengers unbelted during a vehicularincident jumped to 41% during Q2 2020,up from around 25% prior to COVID- 19.
Such unsafe behaviors have contributed to a rise in severe injuries on theroad — namely those involving insurance claims exceeding $3 million. As aresult, pressures on excess liability ratesfor auto have increased.
Home repair costs are another element
at play. Over the past few years, sup-
ply chain disruptions, spikes in demand,
trade wars and other factors have all
contributed to increases in the price of
source materials. To illustrate this point,
consider the cost of framing lumber, a
common home-building material. From
2008 to 2020, the cost per 1,000 board
feet of framing lumber increased by near-
ly 155%, according to Fastmarkets RISI.
That said, home repairs — and costhikes — involve more than just sourcematerials. The introduction of new technologies into refrigerators, dishwashers,cooktops and the like have contributedto higher replacement costs for homeappliances as well.
Exacerbating matters further, naturaldisasters are becoming more frequentand severe. From extreme weatherevents — such as Atlantic hurricanes orPacific wildfires — to smaller, but morefrequent events — including wind andhailstorms impacting the Midwest —storms are intensifying and increasing innumber across the country.
As a result of these and other factors, property damage-related insuranceclaims have become more expensive,and homeowners insurance rates haverisen in tandem.
As the risk landscape continues toevolve, it more important for clients tosecure not only the insurance coveragesthey need, but also the appropriate limits. While rising rates can add to clients’policy costs, the financial benefit that isprovided by having appropriate coveragein place far outweighs any adjustment inpremiums. With a deeper understanding, advisors can educate clients on thelong-term value of securing the properinsurance coverages and limits, despiteany increased short-term costs.
Fran O’Brien is division president, NorthAmerica Personal Risk Services, Chubb. Reachher at AskFran@Chubb.com.
WEALTH & RISK
By Fran O’Brien
How Advisors Can Help Clients Understand
Increasing P&C Insurance Rates
Premium rate hikes are happening due to COVID- 19 as well as other factors.