Could Hurricane Sandy Cause Your Home Insurance Rates To Rise?

Hurricane Sandy  was a huge and vicious storm that dealt the northeastern US such a severe blow that the clean-up will probably continue for many more weeks and perhaps even months.  Luckily for those of us in North Carolina, Sandy dealt us mostly a glancing blow and for the most part we didn’t suffer huge property losses here.   Despite this though, hurricane Sandy will almost certainly contribute to higher future home insurance rates for you and your neighbors.

   

Property insurance rates for your homeowners insurance policy are promulgated from data gathered from many different sources from your credit score to the construction type of your home to the fire protection in your town.  Weather related past loss experience is also a huge player in this number crunching process.  And as far as weather related losses such as hurricanes go, there are really three ways that you can be affected negatively by these storms.  We can look at each of these three loss impact separately.

The first impact type is really very  simple and direct.  It’s pretty obvious that when your home or property suffers a direct loss from a storm and you have to file a claim that the insurance company is going to review your policy more closely before determining your rate at renewal.  Most insurance companies will allow you to file some number of weather related claims before they take the more drastic step of non-renewing your policy.  Many years ago, some companies might even allow as many as three weather related losses on one homeowners policy if they were all small.  Things have changed quite a bit in the past two years and some insurance companies now won’t tolerate even one weather related loss without at least requiring that you increase your deductible.  Many might just not renew your policy after one weather related loss.

A second, less obvious storm impact on your home insurance rates happens when a storm hits your local area.  Even though your home may be spared the damage, you may still face future rate increases due to this storm.  When insurance companies pay out for a lot of storm losses in one area, you can bet that they start to train their attention on that area and begin to work to get more rate increases there.  So, even when you have dodged the bullet of storm losses, you may not dodge the rate increase bullet caused by that local storm.

The third storm impact for rate increases comes from the fundamental mechanism of how insurance spreads losses around.  Consider that when you purchase home insurance you are substituting a smaller known loss (your premiums) for a larger unknown one (storm damages to your home).  The insurance companies do the same thing with their risks by purchasing reinsurance coverage for their book of policies.  Reinsurance is insurance protection that insurance companies purchase from reinsurance companies on all or some portion of their policies.  For example, an insurance company might sign a reinsurance contract with a reinsurer that says that if they suffer losses from any one storm that exceed $100 million then the reinsurer will pay for all claims over that amount.  Knowing this, you can quickly see that when large storms hit the US and cause extensive damage, the reinsurers have to pay out on their contracts with the insurance companies.  After this has happened, the future costs of reinsurance will be higher as the reinsurers attempt to cover past losses and also make sure that they are profitable going forward into the future.  These higher reinsurance costs are then passed on down to the homeowners insurance consumer.

So knowing all of this, let’s revisit hurricane Sandy.  For most of the North Carolina residents, this storm was a nonevent in terms of damage to their property.  But you can see, this still doesn’t mean that we won’t have to pay for some of these losses ourselves.  The third impact of storm losses tells us that we will see higher rates in our area even though we did not experience many direct losses as a result of this storm.

 At Clinard Insurance Group, we insure thousands of families all across North Carolina.  We are here to help you with your questions and to help you save money on your home insurance, your auto insurance, your life insurance and even your business insurance.    Please feel free to call us toll free, at 877-687-7557 if you have any questions about your personal or your business insurance.  We are here to help you.