Below is an article I wrote last summer for the local Tribuna Newspaper's "What You Should Know" column. The story still holds true:
In the last two to three years, many property owners have asked themselves the same question: “Why am I suddenly paying so much for my insurance?” It is a just question. After seven years of “soft” pricing, this sudden increase in premium may come as a shock, but there are several contributing factors that help to explain the hardening insurance market we see now.
While the freakish weather events of recent years certainly contribute to rate increases, most consumers don’t realize that the natural insurance market cycle was already moving in this direction. The insurance market typically experiences spells of “soft” pricing (i.e. rate decreases) for 5-7 years, while carriers aggressively compete for business. This leads to insufficient pricing models and losses for these carriers. In order to counteract this trend, companies will underwrite more stringently while simultaneously increasing premium rates. Following a few market leaders, the property insurance market will then typically see several years of price increases. These “hard” markets are generally shorter than soft markets, and last only 3-5 years. When the storms of 2011 began to make an impact, we were just seeing the end of a seven-year soft market.
Of course, the weather-related catastrophes of the past three years are the most common scapegoat for the sudden and drastic increases in the cost of insurance, and with good cause. In 2011, we saw unprecedented events, both locally and worldwide. We were rocked by earthquakes, heavy snows, northeastern hurricanes, tornados and flooding. Hurricane Irene alone caused around $15 billion in damage. Thankfully, 2012 was a light winter in New England, and worldwide, we did not see the record losses of 2011. However, in the United States specifically, natural disasters contributed to record losses that dwarfed the previous year. Hurricane Sandy was three times more costly than Irene, causing nearly $50 billion in losses. Sandy, and the Midwest drought later in the year, are examples of the unusual weather events that we have been seeing more frequently. Due to factors like global warming, weather models for the coming years now predict continued volatility and permanent changes in the weather patterns we once relied on.
These changes in Mother Nature will also mean significant changes in building codes, zoning regulations and insurance modeling. Irene and Sandy were, in part, as costly as they were because standards for coastal building and insurance modeling are grossly outdated. We now have far more people living near the shore than when these guidelines were written, and in far more expensive homes. Coupled with volatile weather, we have a recipe for disaster. Unfortunately, going forward it will be more expensive to build coastally, and even more costly to insure that home when you do. For example, in first quarter of 2012, areas that are prone to natural disasters saw 20 percent increases on average—double that of low-risk areas, which saw only 10 percent. Big changes are coming, especially to the National Flood Insurance Program, but expect property insurance prices to continue to rise across the industry.