by Darrell Conrade with Conrade Insurance
Insurance in one form or fashion has existed throughout societal history. Historians have identified various forms of risk sharing as far back as the ancient Babylonians (4000 – 3000 BC). One would think that an industry this old would not be subject to much disruption.
Many LeadingAge members have recently been experiencing significant disruption with their property insurance. This can include significant rate increases, increased deductibles and reduced coverage terms. We are often asked why these changes are occurring. Simply put, insurance goes through cycles like all financial services. However, what many Kansas long-term care providers are experiencing is unprecedented and very challenging.
Living in Kansas is a major reason, but other forces are also contributing to this problem:
- Insurance companies buy insurance to spread their own risk. This type of insurance is known as reinsurance. Reinsurance companies have experienced greater than normal losses. The recent Hurricanes Harvey, Irma and Maria appeared to be small. However, together they created more losses than the record Katrina hurricane of 2005
- Wildfires in California and elsewhere have resulted in nearly $50 billion of insured losses.
- New computerized risk modeling technology has shown that Kansas storm activity is more volatile than was thought in previous years.
- When insurance carriers experience higher losses than expected they will often withdraw from certain lines of insurance. This has certainly happened in Kansas as we have seen long-term property writers simply leave the state. This creates a seller’s market.
How might these changes be impacting your coverage? What pitfalls might you experience?
- Your new carrier may be a nonadmitted insurance company. These carriers will often provide protection when more traditional insurance companies are not willing to do so. It is not a negative to use a nonadmitted carrier if you fully understand the coverage terms. Just be aware that in many cases the coverage provided by a nonadmitted insurance company may not be as broad.
- Wind/hail deductible buyback policies are now commonplace. These policies are being made available from various underwriters at Lloyds of London. These policies can be structured to apply per building or across a schedule of buildings. Make sure your wind/hail deductible policy is properly conforming with your primary property policy.
- If you are changing to a new carrier you may be subject to a coinsurance clause. This is a penalty clause that can significantly reduce your settlement if your building, contents or business income limit(s) are too low. Also, we have seen situations where coverage is converted from replacement cost to actual cash value. Actual cash value policies allow for depreciation to be applied which can significantly reduce a claim payment. Make sure your broker fully explains any of these reduced coverage terms and how they may impact any claim you experience.
- Start working on renewing your insurance well in advance of your policy expiration dates. If you sense your broker does not fully understand what is happening with insurance for the long-term care field, you might need to look around. Waiting until the last minute will really limit your options. There are fewer underwriters offering coverage to your industry and every underwriter has a full desk of submissions. If they do not feel like they have adequate time to understand your community, they will either price it much higher or simply decline to offer terms.
This type of situation often gives rise to innovative thinking that will foster a new approach to solving a problem. Your association is exploring options to help alleviate some of the insurance market conditions that you are facing. In the meantime, if you need help with your insurance needs, please reach out to Debra or Kevin for assistance.
