Page 48 - Investment Advisor June 2021

WEALTH & RISK

By Fran O’Brien

How Advisors Can Help Clients Understand

Increasing P&C Insurance Rates

Premium rate hikes are happening due to COVID-19 as well as other factors.

fter the onset of COVID-19, finan- common home-building material. From
cial advisors were faced with an 2008 to 2020, the cost per 1,000 board
A unprecedented challenge: help feet of framing lumber increased by near-
clients navigate economic uncertainty ly 155%, according to Fastmarkets RISI.
brought on by a global pandemic. Amid all That said, home repairs — and cost
the unknowns, advisors became trusted hikes — involve more than just source
confidants and relied on their knowledge materials. The introduction of new tech-
of previous market volatility to guide cli- nologies into refrigerators, dishwashers,
ents through uncharted territory. cooktops and the like have contributed
Now, just over a year later, financial to higher replacement costs for home
advisors are stepping up to the plate again, appliances as well.
helping clients understand their fiscal insurance market, pandemic-related Exacerbating matters further, natural
outlook in a post-pandemic world. To and otherwise. disasters are becoming more frequent
help maximize clients’ financial futures, To start with pandemic-related behav- and severe. From extreme weather
it’s critical for financial advisors to main- iors, take recent changes in driving. Due events — such as Atlantic hurricanes or
tain a holistic view of the factors that can to government-imposed stay-at-home Pacific wildfires — to smaller, but more
impact their clients’ overall wealth man- orders earlier in the pandemic, fewer peo- frequent events — including wind and
agement strategies — including insurance ple were on the road — but those who hailstorms impacting the Midwest —
coverage and associated price. were driving tended to engage in riskier storms are intensifying and increasing in
According to a recent report from behaviors. According to a study conducted number across the country.
MarketScout, the composite rate for by the National Highway Traffic Safety As a result of these and other fac-
personal lines insurance — that is any Administration (NHTSA), people were tors, property damage-related insurance
kind of insurance that covers individuals found to be less likely to adhere to even claims have become more expensive,
against loss that results from death, injury, simple safety measures like wearing a seat- and homeowners insurance rates have
or loss of property — increased by 6.3% in belt during the early days of the pandemic. risen in tandem.
Q4 2020. But affluent homeowners seem Notably, the NHTSA found that the rate As the risk landscape continues to
to be the most impacted, as those who of passengers unbelted during a vehicular evolve, it more important for clients to
own properties worth more than $1mil- incident jumped to 41% during Q2 2020, secure not only the insurance coverages
lion saw average rate increases of 8.2%. up from around 25% prior to COVID-19. they need, but also the appropriate lim-
Depending on clients’ exposure to certain Such unsafe behaviors have contrib- its. While rising rates can add to clients’
types of losses, for example hurricanes or uted to a rise in severe injuries on the policy costs, the financial benefit that is
wildfires, and/or loss experience as well road — namely those involving insur- provided by having appropriate coverage
as other rating factors, increases could be ance claims exceeding $3 million. As a in place far outweighs any adjustment in
much steeper in the current environment. result, pressures on excess liability rates premiums. With a deeper understand-
As advisors look to guide clients going for auto have increased. ing, advisors can educate clients on the
forward, here’s what they need to know Home repair costs are another element long-term value of securing the proper
about the hardening insurance market. at play. Over the past few years, sup- insurance coverages and limits, despite
ply chain disruptions, spikes in demand, any increased short-term costs.
RATE INCREASE DRIVERS: IT’S NOT trade wars and other factors have all
JUST COVID-19 contributed to increases in the price of Fran O’Brien is division president, North
Several elements are contributing to source materials. To illustrate this point, America Personal Risk Services, Chubb. Reach Adobe Stock
the rate increases in the personal lines consider the cost of framing lumber, a her at [email protected].

46 INVESTMENT ADVISOR JUNE 2021 | ThinkAdvisor.com