Top 5 Ways An Active Hurricane Season Impacts Insurance

Storm Season is here which means everyone is bracing for the possibility of a hurricane. How does an active hurricane season affect insurance rates?

Increased hurricane activity affects insurance rates in various ways that reflect the heightened risk and potential for significant financial losses. Let's look at the top ways an active season may impact rates:

1. Higher Risk Rating:

• Frequent and Severe Claims:

  With more hurricanes occurring, insurers face a higher likelihood of frequent and severe claims. This increased risk is factored into the calculation of insurance premiums, leading to higher rates.

• Updated Risk Models:

  Insurance Companies are continually updating their risk models to reflect the latest data and trends. Increased hurricane activity causes revisions to these models, often resulting in higher estimated risks and-- you guessed it-- higher premiums. 

• Flood Zones:

  With strong storms can come flooding. Areas that hadn't flooded before may become "flood zones" in time. Homes in designated flood zones, which are often hurricane-prone areas, may be required to carry flood insurance, especially if the property is mortgaged. This adds to the overall cost of insurance for homeowners.

2. Increased Claims and Payouts:

• Greater Financial Losses:

  The simple fact is that more hurricanes lead to more frequent and larger claims, which result in higher payouts by insurers. To cover these increased costs, insurers raise premiums.

• Depleted Reserves:

  Insurance companies have to maintain a reserve of money to pay future claims. With increased hurricane activity, reserves may be depleted, necessitating higher premiums to rebuild them. 

 3. Market Competition:

• Less Competition:

  Active storm seasons lead to more claims which means higher payouts. Too many in a row (or just one really big one) may have Insurance Companies deciding to stop writing in that area or they may even go insolvent. .

• Increased Demand:

  With less competition comes higher demand. The companies that remain in the market have a higher demand which means that they can raise rates due to lack of competitive pressure. 

• Availability of Coverage:

  In some high-risk areas, there may be no option available to homeowners, forcing them to be insured by the state coverage (Citizen's). The rates on these plans are typically higher than private coverage. 

 4. Mitigation Efforts:

• Incentives:

  Insurance Companies may require homeowners to make changes to their home to reduce risk. Requiring stronger roofs, hurricane shutters, etc. is not uncommon in storm-prone areas. While these measures may lead to discounts, the overall increase in hurricane activity can still result in higher base rates.

• Stronger Building Codes:

  Stronger building codes aimed at reducing hurricane damage can influence insurance rates. Homes built or retrofitted to meet these codes may see lower rates, but overall premiums may still rise due to the broader increased risk.

5. Economic Impact:

• Real Estate:

  The cost and availability of insurance can impact property values in hurricane-prone areas. High insurance costs can make homes less affordable which affects the real estate market. In some cases a buyer may even be required to make updates to the roof or other parts of the home to even get insurance on the home which may break the sale.

No matter which way you look at it, storm-prone areas are subject to insurance volatility. As the season gets underway it's understandable to be worried about the impact that potential storms can have on insurance rates in the coming years. 

The only thing we can do is be informed and prepared. Thats why your team at Kastner Insurance Group is here to answer any questions you may have about this & more!

We offer unbiased advice to ensure our clients are fully covered, and our customer service is unmatched. 

Call us today or visit our website for a customized quote.  

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