What’s happening with your insurance? Iowa commissioner explains

DES MOINES — The cost of reinsurance — often called insurance for insurance companies — has exploded in recent years due to pandemic, war, inflation and natural disasters and in turn left consumers worried about the possibility of higher premiums and cancellations.

Some insurance companies have stopped selling new reinsurance policies as a result of the increased costs. For example, property catastrophe reinsurance rates rose by as much as 50 percent this summer, according to a report from the broker Gallagher Re, Reuters news service reported.

With reinsurance, an insurance company transfers risk to a reinsurance company. The reinsurance company assumes all or part of one or more insurance policies issued by the insurance company, according to the National Association of Insurance Commissioners.

With reinsurance costs skyrocketing, The Gazette asked Iowa Division of Insurance Commissioner Doug Ommen what is happening to insurance companies based here, and whether these increasing costs will be passed down to consumers.

The following conversation is edited only for clarity and brevity.

Q: Reinsurance rates are increasing exponentially. Are you seeing an impact in Iowa?

A: I think here in Iowa we are experiencing the hardening in the reinsurance market. And hardening can be caused by a variety of circumstances. But I would suggest to your readers it is impacting us as well. … You combine that with our three years in a row where we had these straight-line winds storms called derechos, it put us on the map of the models starting to show again, based upon those experiences that, having an over concentration of risk, even in the Midwest, could put a company in a bad place.

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Q: How will these increasing prices of insurance for insurance companies impact regular insurance consumers in Iowa?

A: It can effect the homeowner who is in a position of being with a company that is challenged now to get reinsurance. It can force a consumer to look for alternatives in coverage. This is something you want to start on pretty early. Under the law, there may only be about 60 days between a notice of nonrenewal and the actual loss of coverage. So you want to check with your agent, talk with your agent, communicate with your agent. …

Insurance is something people don’t want to think about, obviously, but it’s actually too late to be thinking about it after the event. … People don’t think about it until they’re in the process of submitting a claim. That’s a problem. So (Iowans) need to think about it, especially with the events that we’ve had in our in our state. It’s really important to be thinking about these risks ahead of time. And some of it may involve the consumer themselves accepting some of that risk. You can think of issues: If you’re building a home, and maybe that’s not as common now, but if you’re going to be involved in putting roofing shingles on your house, look at some of the higher quality products that are weather resistant.

Q: Are these increasing reinsurance costs going to continue into the near future? Or is this something that has ebbs and flows?

A: If inflation is not addressed, and the insurance companies have no control over that, but if that’s not addressed, that’s not a cycle that the insurance companies are going to be able to sort out. Because that’s an ongoing cost associated with the cost of insurance.

As for the other issues surrounding weather events, (for) insurance companies, it’s all about modeling. And so the answer to that question is if you look at historical behavior, yes, we will have increases in weather events and then presumably less frequent, less severe events. But again, there’s all sorts of opinions about that as well. But insurance is going to respond to actual experience, which is driven by these (severe weather) events that we’re seeing.

Q: To that point, we used to think of extreme weather events primarily as a coastal problem with hurricanes. Now Iowa in recent years has experienced derechos and historical droughts, and these impact reinsurance costs, correct?

A: Obviously in the Midwest, we’re much more sparsely populated than along the coast. What the coasts are facing is the desire to continue to add additional residential buildings in areas that are prone to severe weather. And if you don’t build the homes in a resilient manner that they can withstand 100 mile an hour winds, the next hurricane that’s going to come through is going to do severe damage to those homes.

But to your point, setting aside the resilience issues there, and the same can be said about wildfires, in the Midwest I think it’s fair to say we will have storms and they’re going to be severe. So it’s really important for homeowners to look at how it is that their home is constructed, to be in a position to move their automobiles into shelter. You may get hail damage on your shingles, but you won’t get hail damage on your auto if it’s sitting in a garage. But if you leave it out on the street, again, those are things that (are) kind of the responsibility of the consumer, to control what they can control. Obviously, they can’t control all of it.

But yes, the insurance companies I think would be wise to put more incentives in place to encourage consumer behavior in terms of building and construction as well as caring for vehicles to try to minimize some of those losses.

Comments: (515) 355-1300, erin.murphy@thegazette.com