Catastrophes and Reinsurance-why our Rates keep going up!

One of the questions we hear often from our clients is: Why do my rates keep going up? I haven’t filed a claim in 30 years! Today’s article will address that very good question.

Just as we’re all affected currently by rising gas prices due to unrest on the other side of the world, in the same way we have to accept that catastrophes that occur all over the world affect us too. We are in a global market and insurance companies buy an insurance policy, called reinsurance, to protect themselves against catastrophic events. So even though Florida has been spared from hurricanes 6 years in a row, the rest of the United States and the world experienced a record amount of insured losses, at $105 billion in 2011. Of this amount, approximately $35 billion was in the United States alone. Think of tornadoes hitting Joplin, Missouri and the South. Hurricane Irene hitting the East and causing massive flooding.

To see a chart showing losses worldwide and more information on catastrophes, click here. So if you’re wondering why your rates went up this year even though no hurricanes or major events in Florida, just remember we’re helping pay for the tragedies in Jopline, Mo and Japan and Thailand. In past years, people in South Dakota have helped pay for all our hurricanes here! So we all really do share the pain of catastrophes.

What makes our rates keep going up is the TREND of ongoing bad weather and the resulting catastrophes and insurance payouts. While 2011 was a record year, it topped a previous record set only the year before, 2010. And experts predict more coming. So if you can figure out a way to stop the bad weather and catastrophes, you can slow down your rate increases!

Scott Love

February 12, 2012