What Insurers Can Learn from 2022’s Hurricane Season
No one likes a hurricane. Not only do they cause loss of life and extensive property damage, the resulting insurance claims, and litigations, can bury Property & Casualty (P&C) insurers and erase profit margins, while policyholders in hurricane-prone areas must deal with increased premiums and the exhaustive claims process. Insurers have weathered the storm so far, yet with 40% of Americans now living in counties hit by extreme weather events, P&C insurers will have to become better at balancing their own business needs with those of their customers. There is a way to make it easier on both sides. Here’s what insurers can learn from 2022’s hurricane season…
Hurricanes Are Only Getting Worse
In 2022, extreme weather events caused $32 billion in global economic losses, and $14 billion had to be covered by public and private insurers. Though parts of the U.S. have always experienced a “hurricane season”, running from approximately June 1 to November 30th, hurricanes are becoming more volatile and intense, particularly along the North Atlantic coast. 2022’s hurricane season was the third costliest on record, causing nearly $65 billion in insured losses, with hurricane Ian rated as the fifth-strongest storm to hit the mainland since record-keeping began over 100 years ago.
Research also shows that these extreme weather events are expected to increase due to global climate change. Tropical cyclones have already become 15% more intense in ocean basins and ones that may have caused minor damage in the past are growing more dangerous as warmer oceans energize storms and increase the amount of precipitation, which pushes flooding inland.
The 2022 season was already above the long-term average. The U.S. saw 14 storms. Eight reached hurricane status and two became category 3 or higher, which are considered major hurricanes. Ian swept through southwest Florida, causing 150 deaths and a swath of destruction as it moved northeast, while hurricane Fiona eventually became a category 4 storm with winds of 130 mph, hitting Puerto Rico and leaving at least 25 dead and the entire island without power.
The reason that climate change poses such a risk is that it affects both the asset and liability side of an insurer’s balance sheet. Florida’s insurance industry is already in a precarious financial situation after two straight years of net underwriting losses exceeding $1 billion per year.
How Insurers Are Handling Rising Claims
Though the dire situation in Florida’s insurance market is often attributed to fraud and overzealous litigation (Florida accounts for only 9% of U.S. homeowners insurance claims but 76% of the country’s claims’ lawsuits), the overall increase in storm damages, and therefore insurance claims, have amounted to an increasingly impossible situation for insurers and policyholders alike.
Though large private insurers and reinsurers have enough capital strength to absorb 2022’s losses, severe weather events like hurricanes present a major source of loss volatility and smaller insurers with less capital can easily tip into bankruptcy. In 2022 alone, six private Florida insurers became insolvent, and many of the major players have simply moved out of state, citing severe pressure regarding underwriting performance and capitalization levels.
As a result, it has become increasingly difficult for customers to find private market homeowners’ insurance. In places like Florida, the few remaining insurers have had to pass off increasing repair, underwriting, and litigation costs to the consumer, leading to an almost 25% increase in premiums in one year (2022). Insurers have also had to restrict coverage, with many primary policies no longer covering wind or flood damage.
Rising premiums and limited coverage are forcing many homeowners to forgo home insurance. The number of Florida homeowners with no property insurance is now nearly double the national average (13%). This is a lose scenario for P&C insurers who remain in hurricane-prone markets. They face the impossible trifecta of increasing risk, increased revenue loss due to the exodus of existing policyholders, and difficulty attracting new policyholders as premiums continue to rise and coverage is limited.
Lessons We Can Learn From 2022’s Hurricane Season
Unfortunately, we may have to learn to live with more severe weather events, however, there are ways that insurers can better protect themselves and their customers against significant losses, while retaining and even winning over new policyholders.
- Redefine policy writing cycles – P&C insurance contracts that cover climate events are usually written for only one year, which often causes insurers to be short-sighted in their decision-making. By extending that cycle to several years, it may force insurers to develop longer-range climate risk impact models that may help them predict extreme weather events more accurately, and thus help them prepare for the fiscal impact, increase in claims and potential spikes in call volumes during particularly volatile seasons.
- Make customer education #1 - If premium rate increases are inevitable, policyholders will want to know what they can expect in return. Insurers need to be transparent about coverage and any deductibles. Ahead of storm season, proactively reach out to customers, to ensure they have sufficient insurance. This is not only an opportunity to sell added coverage, but also an opportunity to win consumer loyalty by helping homeowners make informed decisions.
- Take steps towards prevention – The best way to minimize claims is to minimize property damage. Much like the energy industry has used awareness campaigns to help customers reduce their energy usage, P&C insurers could do the same when it comes to hurricane damage prevention. Teach your policyholders how to secure their homes and how to minimize damage, for instance, by promoting or giving incentives to convert from asphalt shingle roofs to more wind-resistant metal ones.
- Streamline the claims process – Insurance customer satisfaction ratings have hit a five-year low, with 68% of all complaints related to delays and communication challenges in claims handling. Insurers who digitized some of the claims’ process during COVID, allowing policyholders to submit property damage photos or get assessments online, saw shorter cycle times, cost savings due to automation, and higher satisfaction scores. Productivity is also maximized, freeing up agents to do higher value work, such as settling claim disputes, potentially avoiding litigation.
How itel can help
The above approach will likely require a dedicated customer experience (CX) team, who can answer basic policy and coverage questions. These can be ramped up prior to and after severe storms, when higher call volumes are anticipated, so customers get information, and help, as soon as they need it. itel can help you ramp easily and efficiently by tapping into its large network of licensed P&C agents across the U.S., as well as non-licensed customer support agents across the nearshore.
Agents can also provide the necessary education about storm damage prevention, review current policies to ensure that customers have adequate insurance, and can provide details about additional policies that can provide more coverage.
Our in-house Data Science & Innovation team can also help you digitize any part of the claims process, helping you balance quality of experience with efficiency and cost-savings, which can also help to manage sudden influxes of calls by diverting some traffic to self-serve channels.
Remember, a delicate balancing act needs to be maintained between digital self-service tools and human touch. Insurers should never lose sight of the fact that these are not just policyholders, but people who need empathy, understanding, and most of all, compassionate service in the face of a catastrophic event.
At itel, our approach centers on human touch, enabled by the best technology, with geo-diversity that not only ensures business continuity during extreme weather events, but allows you to tap into a diverse pool of highly skilled, licensed, and trained P&C agents with the empathy and caring your policyholders deserve.
Learn how we support insurance providers by delivering the best customer interactions in a rapidly evolving industry. Then contact our team to get started!