2020’s global recession has affected pricing in many industries, and the insurance industry is no exception. In particular, Umbrella Insurance and other forms of excess coverage have increased in price. Insurance pricing is tied to the likelihood of customers filing a claim. Umbrella Insurance claims were rare in the past, as they usually happen due to catastrophic events. However, this year’s pandemic, fires, hurricanes, and other current events have led to an increase in claims.
Causes of Increased Umbrella Pricing
Several factors are causing an increase in prices for umbrella coverage. These increases are tied to more than just this year’s current events – umbrella policies have steadily been getting more expensive for a while.
Increasing Car Accidents
The rate of car accidents has gone up steadily over the last several years. Several different factors have contributed to this. More drivers are on the road, and many of them are driving distracted due to smartphones. Many cities and states have also slowed down on necessary infrastructure repairs, making the roads more dangerous. With increased car accidents comes increased insurance prices.
Changes to Lawsuit Financing
Another factor that affects umbrella markets is the way that lawsuits are run and financed. In the past, many people would handle lawsuits on their own, but most lawsuits have involved attorneys in recent years. The practice of lawsuit investing has also become much more common. This means that the attorney finds individual investors to front money for the lawsuit before it has started. Many lending institutions now offer a similar option that allows plaintiffs to borrow money upfront for the lawsuit. This means that settlement amounts have increased to the point where defendants would need to tap into their umbrella coverage.
Due to the increase in insurance claims, many insurers have had to take out reinsurance to protect their assets. Reinsurance is an added cost to the insurance company, and they pass these costs down to consumers.
Umbrella Insurance has always been marketed as an affordable policy add-on for consumers. However, it has been consistently underpriced in the past. For many years, pricing didn’t reflect things like an increasing number of natural disasters and increased health care costs. Now, pricing is increasing to reflect this risk. Insurance capacity is also shrinking, and when these two factors are combined, it results in higher prices for consumers.
The insurance market as a whole is continuing to change, and we can expect the fallout of 2020’s pandemic, natural disasters, and economic collapse to continue for the next few years. Because of this, we should expect Umbrella Insurance premiums to continue to go up.
However, this doesn’t mean you shouldn’t take out an Umbrella Insurance policy. In fact, with average settlement costs going up, one could argue that you need Umbrella Insurance more now than ever. Great Lakes Insurance offers umbrella coverage in Cloquet and Duluth, Minnesota.
How To Learn More
To learn more about Umbrella Insurance, contact Great Lakes Insurance. Our licensed professionals will be happy to answer any questions you have.