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Homeowner’s Insurance Unhinged
Karen O’Connor Corrigan, CIC
Who, What, When, Where, How, and Why are Homeowners Insurance Policy Prices Soaring or Getting Cancelled?
The short answer is the weather-driven destruction and inflation for the cost of repairs or reconstruction. Insurance companies are paying out more for property claims than the premium they take in. The actuaries who set the pricing cannot get it right with all the new weather patterns. Can we even call these weather patterns—they are so unpredictable? We will attempt to answer the question
WHO is affected the most? Single-family homeowners are paying the toll because they have to insure the exterior of the house. Condominium owners will see the storm effects in a year or so after the insurance companies realize how much Loss Assessment they paid out toward Master Policy wind and hail deductibles. It would be remiss if I did not mention condominium owners pay in another way. Their monthly condo assessments have increased to pay for Master Policy price hikes. Renters are practically insulated from price hikes.
WHO is talking about us? Unfortunately, Missouri is all over the news. In June 2024, CNN’s Violent Earth series starred Joplin, Missouri’s EF5, mile-wide tornado that remained on the ground for 32 minutes. On May 13, 2024, the New York Times reported, “In the state of Missouri insurers consistently made money on homeowners coverage until significant losses last year, when Missouri was affected by 11 separate billion-dollar disasters, exceeded only by Texas and Georgia.”
WHAT is causing this? Severe convective storms lead the world in catastrophic weather claims. They include torrential rains, lightning, hail, straight-line winds, and tornados, which is what happens in Missouri. Year after year of harassing storms coupled with year after year of inflation results in the perfect insurance storm. Insurance companies can survive on investment income for a while, but not year after year. What has happened in the U.S. from January through July 2024? There were 19 billion-dollar events, with five months to go. We know hurricanes Helene and Milton will be added to that count.
WHEN did all of this start? Insurance companies follow the numbers, which do not become statistics until there is enough claim accumulation. In other words, insurers tend to be slow to react in most cases. In 2023, the property losses from weather seemed permanent. Insurers paid $100 billion in weather-related property losses for 6 out of 7 years. This is double what they ever paid before.
WHERE are the price increases and weather disasters happening? It is not just western wildfires and coastal hurricanes. On the contrary, 66% of the $100 billion paid by insurers was from severe convective storms. Missouri is now included on the latest list of catastrophic storm states. According to the U.S. Department of Commerce’s Storm Prediction Center and National Weather Service, we are ranked number 5 in the United States with major hail events of hailstones one inch in diameter or greater.
WHERE are most natural disasters happening? In the last 40 years, according to USA Facts, Texas had the most billion-dollar disasters (186), then Georgia (129), Illinois (126), Missouri (118), and North Carolina (117). USA Facts is a not-for-profit organization founded by former Microsoft CEO Steve Ballmer. The mission is to provide US facts from data to deliver unbiased numbers. Here are a couple of USA Facts. The severe storm May 25-26, 2024, that rolled through the central states (including Missouri) cost $2. 5 billion. The central and southern March 12-14, 2024 severe storm cost $5.9 billion.
MISSOURI NUMBER FIVE IN THE U.S. FOR HAIL
HOW are these costs calculated? The National Oceanic and Atmospheric Administration (NOAA) calculated the cost in 2024 dollars and the estimates include:
- Physical damage to homes & businesses
- Damage to property inside these buildings
- Cost for businesses being shut down and extra cost for people who cannot live in their homes
- Damaged vehicles /boats
- Damage to public assets like roads, bridges, or electrical infrastructure
- Agricultural loss
HOW are the insurance companies reacting to the financial losses driven by the weather-related claims?
- Multiple years of double-digit price increases taken by most insurers
- Actual Cash Value coverage on roofs 10-15 years old instead of Replacement Cost
- Higher wind and hail deductibles, such as percentage deductibles
- Stricter underwriting, new policy terms, and often non-renewing homes with older roofs, claims, poor maintenance, etc.
- Some companies are non-renewing all personal insurance policies in Missouri or across the U.S
- Some companies will not offer new coverage in Missouri
- Trimming coverage, such as offering pick-your-own-peril policies
- Eligibility requirements to qualify as a new customer are often prohibitive
WHY is it important to understand the increases? We do not suggest clients make changes based on unstable upward prices. Your insurance company might be high this year, but a new company will play catch-up next year. We should not jump ship during difficult times. The underwriters are so strict that a policy can be canceled with even one claim if you are a new customer. The insurance companies barely want new customers—much less someone with a claim. If they would entertain a new customer, companies ask for records of all mechanical system updates, at a minimum. History with an insurer can pull some weight, and we truly do not know who the next insurer is to start pulling out of Missouri. Let the dust settle. We need profitable insurance companies again so we know we can rely on them should a disaster happen.
FINALLY, one more important question: When will this be stabilized? More sophisticated weather modeling is in development. We hope this will help insurers identify the homes that are most vulnerable to hazards and apply the higher premiums commensurate with exposures. Once insurers regain more certainty, they should regain profitability. We have to have profitable insurance companies to rely on for recovery following a disaster.
Are major disasters increasing?
9 out of 10 years with the highest number of natural disasters occurred in the last decade.
Updated on Fri. September 6, 2024 by the USAFacts Team.
Get help to avoid frozen pipes in your apartment or condominium communities from Elizabeth & O’Connor Insurance
Extreme winter weather, in and around St. Louis, hit Condominium associations extremely hard. Absent traveling homeowners during the holidays, left homes unprepared for the record cold and windchills of 20 to 25 below zero. As a result, pipes began bursting, causing water-damaged homes and increased insurance claims. Elizabeth D Schurwan, O’Connor Insurance, EBP, CIRMS, CIC, outlines the current problems in her article
Frozen Pipes in the Insurance Crisis-CAI Winter 2024
Agency Nation Radio invites Karen O’Connor to Speak.
Agency Nation Radio invites O’Connor Insurance President Karen O’Connor to discuss her expertise on insuring multi-family housing in today’s challenging market.
Karen O’Connor Corrigan, president and owner of O’Connor Insurance in St. Louis and one of the foremost experts on community associations sits down with Nancy Germond, Big “I” executive director of risk management and education for an episode of Agency Nation Radio Podcast.
Click to Listen to Nancy & Karen to learn all about the Challenges and Solutions when insuring Multifamily Homes.
Challenges and Solutions When Insuring Multifamily Homes
2023 O’Connor Insurance Scholarship Awarded
Congratulations to our Commercial Lines Manager, Elizabeth Schurwan & her Champion English Setter, Huntwood Bennett’s Magical Journey (aka Bennett) !
Employee Spotlight: Mary Perkins
A valued employee since 1994, Mary Perkins, Senior Personal Account Manager, steps into the Employee Spotlight!
How did you get into the insurance industry?
I was looking for a different job and a family member who was in the insurance industry gave me a lead for a job at a major insurance company. I applied and got the job. Now many years later, here I am – still in the business!
(Special Note: Mary has been the only Personal Account Manager for many of our clients for years. She has become a trusted friend as well and some check in with her on a regular basis to just say ‘hello’ as good friends do.)
What is some advice you give your clients?
I realize the premium clients pay is very important to them. However, I recommend to clients to plan carefully by purchasing the proper coverage to meet their needs even if the premium is a little higher. In the event of a claim, they will appreciate having the proper coverage to cover the loss instead of the regret of not having the right coverage.
What’s something you do outside of work that would surprise your co-workers or clients?
I enjoy going out and traveling with friends. Also, I really enjoy spending time with my grandchildren and try to attend all of their sporting events.
Social Inflation Inflames Our Nation
Calling all the 2020 Karens, Zoombombers, superspreaders, Trumpers, social unrest protestors, cancel culture conspirators, herd immunity participants and essential workers to move out of the way. We are flattening the curve and shifting to the next catchphrase, social inflation. This means insurance claim costs are rising over the rate of economic inflation due to societal attitudes.
This phenomenon is drastically affecting the umbrella liability capacity, resulting in reduced policy limits and premium increases. The term, social inflation, describes the following trends within the general public:
1. Increased litigation;
2. Holding defendants to a broader duty of care;
3. Supporting legal decisions in favor of the plaintiff whether or not within the law (jurors are
biased to social justice and want to hold businesses responsible);
4. Much larger awards to plaintiffs (nuclear awards).
Let’s explore some of the outcomes that provide evidence of social inflation.
INCREASED LITIGATION: During the pandemic, there are not as many vehicles on the roads and fewer business operations, which should result in fewer lawsuits in these areas. However, the 1,500 COVID-19 cases filed from March 2020 to December 2020 are nearly eight times the number of cases that follow the typical natural disaster.
DEFENDANTS HELD TO BROADER DUTY OF CARE: Negligent security cases are on the rise. In the past, when a crime was committed the property owners did not have a duty to protect a person from another person according to common law. However, times are changing, and so are the standards of care. In the fall of 2020, the new duty to protect was evident in the case of a professionally managed and gated townhome community in Florida where a 30-year-old father of three was fatally shot on the common parking lot, allegedly by a stray bullet. Three young boys dressed in black had been roaming the property, and when asked what they were doing, one of them pulled a gun and fired three shots. Following an investigation revealing prior crimes on the property and in the neighborhood, the townhome community’s and the management company’s insurers each paid policy limits. The community’s security was ineffective: no security guard, the gate video camera and a parking lot light were inoperable, and the perimeter chain-link fences were notorious as sources of entry for suspected trespassers to climb over easily.
Community associations are not the only casualties of negligent security. A lack of video surveillance outside a convenience store resulted in a $52 million payout when a shooting occurred on-premises. Thirty-eight million was paid for an attempted carjacking resulting in gunshot wounds to the victim. An apartment complex and shooter on-premises were both held 50% responsible; $20 million was paid. Other honorable mentions are $5 million for an injury on a nightclub’s premises and a $2 million settlement for a crime in an apartment building hallway.
BIASED JURORS AND NUCLEAR AWARDS: A $90 million Texas jury award in 2018 proves this point. A mother of three was driving in the freezing rain and black ice when she lost control of her pickup and crossed over the grass median into the oncoming traffic, where her pickup was struck by a Werner Enterprise truck. The accident resulted in a seven-year-old boy’s death, and a twelve-year-old girl was rendered a quadriplegic, while the mother and another son suffered extensive brain injuries. The jury found Werner 70% responsible, Werner’s driver 14%, and the mother bore 16% responsibility. Why was the jury anti-Werner? Every state’s Commercial Driver’s License (CDL) manual instructs 18-wheelers to slow to a crawl and get off the road during icy conditions; Werner’s student driver was traveling 50 mph. Werner did not provide the driver with basic safety equipment such as an outside temperature gauge or CB radio, which could have made the driver aware of the icy road conditions. Also, it seems the jury did not approve of Werner’s executives’ testimonies that the company did absolutely nothing wrong and would not make changes in the future. Voila, the verdict!
Where this ends is yet to be seen. In the meantime, we can expect more of the same. We now face the 2020 backlog of courtroom cases with yet-to-be-seen jury awards. Our litigious population of the Karens, Zoombombers, superspreaders, Trumpers, social unrest protestors and cancel culture conspirators will file new lawsuits, and societal bias against business will continue, thus continuing to fuel social inflation.
Strategies for Tragedy: How to Help Community Associations Recover from Nuclear Jury Awards
There is no magic formula to determine how high we should go when offering our clients umbrella limits. If you follow the verdicts, it appears the sky’s the limit. We will explore some jury awards, umbrella involvement, and what can be done if the umbrella is insufficient to meet the “sky’s the limit” award.
It is challenging to imagine why a condominium’s umbrella paid for an 80-year old driver who hit father and son bicyclists, killing the son. Twelve million was awarded after a woman pulled out of a condo’s underground garage and hit the boy. Apparently, her vision was impaired by a hedge and a stop sign was not properly placed, which was in violation of state and local regulations. The jury found the management company 60% at fault, the condominium 30% and the driver only 10%. Equally difficult to understand is why a condo’s umbrella protected a management company who misplaced a stop sign and did not trim the hedges in accordance with regulation. This is because the underlying general liability includes the real estate manager under “who is an insured,” and the umbrella follows.
Is $12 million the going rate for a life? A New Mexico jury thought so when a 31-year old man was killed inside a condominium unit by a stray bullet that pierced his heart right in front of his two children. The perpetrator was never found, but a drug deal gone bad was suspected. The man’s family sued and pled to the jury that the condominium and property manager must keep the property safe. The attorneys stated, “First and foremost, they should have been tenant screening. They allowed a person with a fake name and fake ID to be on the property.” Who would have thought of this when contemplating umbrella limits?
A $6 million umbrella did not go far when a northwestern Indiana circuit court awarded $30.7 million for three boys who fell through the ice at Lakes of Four Seasons Property Owners Association. One Sunday morning in March, ten- and eleven-year-olds Christopher, Andrew and James threw rocks to make sure the ice was solid. They ventured onto the lake only to witness Christopher fall through as he headed back to shore. The brothers rushed to save him when Andrew and James fell through. Andrew drowned, James was left with traumatic brain injury and Christopher survived with the memories. The lake contained an overflow crib that circulates water beneath the surface. The plaintiff’s attorney argued there was no warning sign, no fence to restrict access, and no safety equipment.
The attorneys had to get past the bias of what the boys were doing on the dangerous ice and where their parents were. This proved easy when the boys’ father testified that he went to work at 7 a.m., leaving his wife and kids in bed, only to return three hours later to find one of his boys dead and another in a coma. Then, when the director of operations was questioned about the cost to add signage and a pulley line which could have been used by the boys, his answer was $70; hence the $30.7 million award.
During intense winds, one community’s 40-foot eucalyptus tree fell on a young woman’s car while she was pulling out of the carport. She was trapped inside and died. This was the second tree to topple on the same carport in three years, which perhaps led to the $10 million settlement. Yet, the 2020 winter yielded two deaths from “slip and falls” on ice at two different condominium parking lots, and there are no claims for damages … yet. The point is that we just don’t know what is going to trigger the next nuclear award.
The insured should examine the exposures to determine the umbrella limit needed. Consider the community’s children, seniors, lakes, pools, other water features, walking paths, trip hazards, playgrounds, sport courts, tree covering, vegetation, and security to name a few. If the umbrella limit is not adequate to cover a judgement, the community association is not absolved of paying off the award balance. Imagine a board of directors collecting the balance of the award with a special assessment to each owner. In the case of the three boys, the board would be asking for $24.7 million from the owners. Owners can typically purchase liability loss assessment with their homeowner’s policy for a minimal cost, but the limit typically caps at $25,000-$50,000. Is that enough? The strategies for tragedy include limits commensurate to the exposures and increased loss assessment coverage for the owners.
Grilling Safely in Your Backyard
Just like swimming pools and sunburns, a sizzling grill is a symbol of summer, but grilling isn’t just about great food. Backyard barbecues often create treasured memories with friends and family.
Keep in mind, however, that when you grill, you’re literally playing with fire. Thousands of residents each year learn this the hard way, suffering damage to their homes or even serious injuries in grilling accidents.
There’s good news, though: You can prevent grilling accidents by taking some simple precautions. The tips below can help ensure you cook only your burgers – and not your house – the next time you fire up the grill.
TIPS FOR ALL GRILLS
* Your grill, whether gas or charcoal, should be on a level surface outdoors, away from anything that could be ignited by flames.
* NEVER use a grill indoors. Odorless carbon monoxide fumes could kill you. If rain ruins your cookout, invest in a cast iron grill pan that can be used on the stove.
* Keep your grill clean and well-maintained. Check parts regularly to determine if replacements are needed.
* Never leave a hot grill unattended or let children play near it.
CHARCOAL GRILL TIPS
From Kingsford.com
* Do not add lighter fluid directly to hot coals. The flame could travel up the stream of fluid and burn you.
* Never use gasoline or kerosene to light a charcoal fire.
* Use flame-retardant mitts and long-handled barbecue tongs, as coals can reach up to 1,000 degrees.
* To dispose of coals, allow the ashes to cool for at least 48 hours before disposal in a non-combustible container. If you cannot wait 48 hours, carefully place coals individually in a can of sand or bucket of water.
GAS GRILL TIPS
From the National Fire Protection Association
* Check your grill’s hoses for leaks before using it for the first time each year. Apply a light soap and water solution to the hose. A propane leak will release bubbles. If you have a leak, and it will not stop after the grill and gas is turned off, call the fire department. If the leak stops when the grill and gas are turned off, have your grill serviced by a professional.
* If you smell gas while cooking, immediately get away from the grill and call the fire department. Do not move the grill.
* Do not keep a filled propane tank in a hot car or trunk. When getting containers refilled, make that your last stop before going home.
* Store propane tanks in an upright position, and never indoors.
From all of us at O’Connor Insurance happy grilling, and stay safe this summer!
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