The sheer amount of uninsured damage from Hurricane Ian will lead to a “real quagmire” of trial lawyers waiting to sue the insurance industry, according to an industry expert at AAIS Pulse.
“This could be anything from the old wind-versus-water disputes along the lines of what we saw in Hurricane Katrina, and to a lesser extent Sandy,” said Bob Hartwig, a professor at the University of Darla Moore School of Business. South Carolina and director of the school’s Center for Risk and Uncertainty Management.
At the Chicago American Association of Insurance Services event on October 24, Hartwig predicted that Ian’s resonance would be heard across the industry, leading to regulatory changes in Florida and potentially serving as a springboard. for a talk about how to build more resilient. communities in coastal states.
One result of Ian is the reduced presence of reinsurers in the Sunshine State.
Stefan Holzberger, chief rating officer, AM Best said reinsurers are looking at Florida and reassessing where they can take actions to improve their performance, including removing aggregate treaties and focusing on industries outside the real estate catastrophe.
“For a concentrated Florida specialist with very limited flexibility, the key to their business model in terms of managing their balance sheet and managing their volatility in terms of operational performance was that reinsurance protection. It will be extremely difficult to sustain that business model in 2023,” he said.
The aftermath of Hurricane Ian also falls against a backdrop of rising inflation, which has led to a rapid increase in the severity of property and car line claims.
In addition to insurers dealing with higher repair costs, companies want to restore the adequacy of rates, Hartwig says.
He said current rates do not reflect the inflationary pressures insurers are seeing today.
“No doubt rates today are inadequate in many situations,” said Hartwig, former president of the Insurance Information Institute. “We’ve seen loss ratios increase in many states, both in personal cars and homeowners, in some cases by 10, 15 or 20 points.”
Hartwig added that it will likely be a multi-year effort to get the rates where they need to be.
“The problem is not only that these costs are rising rapidly today, but the rates in effect today for an auto or home or commercial property insurer are based on historical trends from the past five, ten years or more and are likely to end in 2021. Hartwig said.
Another trend brought up by both speakers is the state of the tort.
Hartwig said tort abuse is rampant in the United States, citing about 1,400 nuclear judgments — judgments over $10 million — in recent years. Hartwig said the average cost of nuclear rulings has risen from $19 million to $24 million.
“The litigators are not only very successful at what they do, they are the best funded and best organized special interest group in the United States,” Hartwig said.
Holzberger said that to maintain an adequate reserve level, insurers must use data analytics and technology to identify claims most likely to be targeted by the trial bar.
“Really identify where you can cut back as an insurance organization and cut back and enforce the contractual arrangements that will drive the ultimate claims resolution,” said Holzberger.
While insurers need to do more at the political level to combat the power of the plaintiff’s counter, Holzberger said it’s important for companies to face the reality of being exposed to expensive claims.
“Most of the insurance companies we track work very hard to avoid reserve shortages,” Holzberger says. “You act like your balance sheet is stronger than it is, you act like your underwriting performance is stronger than it is. Really the impetus to get the reserves in order, even if there is bad news, I think it will lead to a healthier organization, even if it is painful to do that.”
Catastrophe Natural Disasters Hurricane