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Trends & More in the Local Insurance Industry
The world of insurance can oftentimes feel like a complicated one, especially in recent years with rates going up. However, much of the change we see in the insurance industry represents and reflects change in our own lives; higher costs of living, increased need for cyber security, and of course living here in Central Oregon, the threat of forest fires.
Local and national insurance agencies are constantly adjusting their game plan to accommodate for an ever changing world. According to Jason Epple, a principal agent at Century Insurance, things in the insurance world are changing quickly now, but still take time. Trends might take one to two years to take effect, and adjustments to rates and business practices can take just as long.
Catastrophic Claims
According to Epple, one of the most glaring shifts in the industry is the newfound high prevalence of catastrophic claims, typically related to an environmental disaster. For Central Oregon and other similar communities, that means forest fires.
“The entire west coast has seen sizable wildfires over the last few years and there’s been some catastrophic claims that have changed the landscape of how insurance companies do things,” Epple said. “Our area is viewed as a high risk area. There are plenty of companies who won’t want to insure anything in these high risk areas, whether it be private homes or commercial buildings.”
The issue of catastrophic claims doesn’t have to just be a local one, however. According to a business insurance report from PayneWest Insurance, the Bend agency belonging to the Marsh & McLennan Agency (MMA), catastrophic claims represent not only the interconnectedness of the world, but also the increasingly volatile nature of doing business and setting up insurance claims.
For Central Oregon, this can be felt when new homes built and purchased on the edges of town, backing up to either an open grassland or the Deschutes National Forest, are seemingly impossible to insure; that, or the rates are much higher than the property owner would prefer, to account for the increased fire risk.
“This makes things difficult for us, especially for long term clients,” Epple said. “We’re always having to adjust, and it makes it difficult to insure clients in areas that were, even just a few years back, not considered an issue.”
Epple explained that insurance agencies work with other companies who create fire maps for various locations, attributing a risk level to each area. He continued to say that the increased risk level we’ve seen in the last two years makes insuring certain properties “next to impossible.”
This increased risk level is also part of the reason that major insurance agencies Allstate and State Farm have completely pulled out of high risk states like California and Florida.
Aside from forest fires, the report from MMA states that the increasing severity of drought conditions in the West, as well as strong heatwaves, could spell similar problems.
Epple said that if it can happen in California, it could happen in Oregon, stating that some of the larger companies are already being extremely cautious in high risk areas.
Cyber
According to both Epple and the report from MMA, a new challenge being presented to insurance agencies is the growing issue of cyber attacks; hacked bank accounts, private information leaks, compromised networks and more.
“This has been here for years, protecting clients from a compromised network, or getting hacked,” Epple said. “However, it has gone from something to consider, to something that is now essential to have. There are groups across the world who go to work and spend all day trying to hack into networks because it is either legal where they operate, or simply unenforceable. As a result, the rates of these compromised networks have gone up in recent years.”
The MMA report similarly states, “Trends in this area include new tactics by cybercriminals to extort payments, novel social engineering attempts to obtain access to sensitive data, and attacks shifting from information technology networks to operations technology.”
The report continued, highlighting the most prevalent, or at least fastest growing cyber risk; ransomware attacks. Ransomware is defined as a malicious software that is designed to block access to a computer system until a sum of money is paid.
According to the same report, “Ransomware attacks more than doubled in 2021 and remained high in 2022, and that threat continues to evolve and persist across all industries and sizes.”
Epple said that, with these increased risks, the cost of cyber insurance has, “gone through the roof, doubling and even tripling in price, or increasing by an even larger factor.”
However, the cost of cyber isn’t the only issue. Taking into account how risk levels affect whether or not something can be insured, Epple stated that clients now have to have a lot more cyber security set in place to even be considered, “Now, to get cyber at all, you typically need a lot of security in your network. The cost of the insurance has increased, as has the underwriting in order to place it. If you don’t have a lot of security measures, you might not be insurable.”
To put this increased risk into perspective, another MMA report from 2022 states that about 75 percent of organizations have experienced a cyber incident in some form, in the last 12 months.
Economic Trends
Another major factor affecting the insurance industry, especially locally, is the higher cost of living and specifically, the higher cost of construction.
Simply put, when buildings cost more to construct, they are going to cost more to insure. Epple reinforced the notion that economically, everything is connected, meaning that aside from just construction, when the cost of living goes up, so will the cost to insure. Luckily, this does work transversely, as well; when the cost of living and construction goes down, insurance rates follow soon after.
Due to all of these factors, property rates have greatly increased, according to Epple. “The cost to insure any property has gone up, basically across the board.” Insurance companies over the years have not been able to adjust their prices as quickly as the world changes, and many decide to keep prices low just to remain competitive. Epple said that we are seeing a somewhat new trend in insurance companies trying to make up for those lost funds from years of catastrophic claims, increased cyber attacks and a higher cost of living.
An issue with adjusting to a world changing this quickly lies in the process of actually changing policy prices. Most Insurance companies cannot legally increase their rates whenever they want to. Instead, they must apply to adjust their rates with the state that they operate in. Epple said that this process can realistically take 3-6 months, however, wait times of a year or more are not exactly unheard of.
Looking at the next two years, Epple predicts that not much will change. Insurance companies will more than likely remain and even grow more cautious as they deal with more and more catastrophic claims and operate in an area with a high cost of living, like Bend.
