Insurance is really quite simple – the premiums charged to the members of Armed Forces Insurance Exchange should be adequate to pay for the losses incurred by our members, plus the operating expenses to run the Exchange and a slight profit to assure financial stability.
In 1887, over thirty officers met on the frontier post of Fort Leavenworth to organize a unique association that became our Exchange. Back then, insurance pricing was easy and efficient. There were no taxes on insurance premiums or extra charges to fund insurance regulation. Insurance premiums did not fund state regulatory departments or state insurance pools for uninsurable risks. In the early years, our company simply charged a reasonable base fee to each member at the start of the policy and then sent a final bill to “settle up” based on the collective losses all the members sustained over the past year. We paid for each other’s losses and kept the organization running.
If we still worked under that original model, this past year Armed Forces Insurance Exchange would have sent large bills to settle up our members’ actual losses. However, that is not how insurance works today in the modern regulated insurance environment.
The premiums Armed Forces Insurance Exchange charge must go through a rigorous regulatory filing process with each applicable state to ensure that rates are reasonable based on past losses. This process mandates that insurance companies’ premiums are reasonably priced for consumers. Still, this process is time-consuming, and insurance prices often take years to catch up if there is a rapid increase in insurance losses or operating costs – both of which we have experienced.
The inflationary pressures our country has experienced over the past couple of years have also impacted insurance costs – both in terms of the cost to repair property damage and the costs to run our Exchange. Even more impactful has been the dramatic increase in weather-related losses across the United States during this same timeframe.
After multiple years of elevated weather losses, 2023 was the insurance industry’s worst year on record for severe thunderstorm and hail-related “catastrophe” losses. Our members and everyone else in the United States were hit hard both in terms of the number and severity of the losses. The undeniable result is that everyone who buys insurance is facing premium increases, no matter which insurance company insures the property or where that property is located.
Each insurance company is managing these challenges in different ways, but all insurance companies are working to raise prices to pay for the increased losses experienced in the industry, and many are operating at a financial loss in the interim.
When the regulatory process to get price increases significant enough to pay the expected losses takes too long or cannot be attained, companies (including Armed Forces Insurance Exchange) must make the hard decision of whether to continue to sell the policies at a loss or to simply stop writing those types of policies.
It is this type of challenging environment where Armed Forces Insurance Exchange sets itself apart from other insurance companies in a highly positive way. Our organization strives to take care of our membership during times when the insurance industry is in crisis. Fortunately, there are inherent advantages of being a member of our Exchange that can help mitigate the financial impacts to our membership.
Like most insurance companies, Armed Forces Insurance Exchange needs to replenish our surplus reserves after the past year. Most companies are taking a combination approach of extremely aggressive premium increases, restricting or stopping new policy sales and blanket cancelling large numbers of policies they deem unprofitable.
Armed Forces Insurance Exchange is taking a more measured and unique approach to help minimize the financial impact on our members while assuring that our Exchange will be here for another 137 years to serve our members’ needs.
Our premiums are increasing as prices must go up, but we are managing those increases to keep them at a minimum level needed to cover member losses and Exchange expenses. And while there are some policies we must stop writing going forward, we are working to minimize the number of policies impacted and our Agents will work with any impacted member to seek replacement coverage with one of our affiliated insurance partners.
In close coordination with our Subscribers Advisory Board and our Board of Directors, Armed Forces Insurance Exchange has implemented a plan to assure our financial stability by returning to our 1887 roots and utilizing our Exchange’s unique ability to charge an annual subscriber’s surplus contribution. This small annual contribution will be a much more cost-effective way to ensure the financial strength of our Exchange as an alternative to higher premium increases. It allows 100% of the amount to support the financial strength of our Exchange, bypassing the haircuts from taxes, fees, assessments, and other costs that would be incurred if the amount were charged as premium. This unique feature of our Exchange is a wonderful feature that allows us to minimize our members’ overall cost of insurance while keeping our organization strong. A more detailed explanation of the benefits and details of this approach are on our website here.
Our challenges are the insurance industry’s challenges. The difference is how we react to the situation – not with panic or overreaction, but with a rational, member-focused approach. I hope that is what our members have come to expect from Armed Forces Insurance. After all, with 137 years of experience, we have seen plenty of challenging times. We will all get through this one together.
Thank you for continuing to put your trust in Armed Forces Insurance and for our part, we will continue to remember that - Our Mission is You.®
Arlen L. Briggs
President & Chief Executive Officer