I’ll start my letter with a frank and blunt statement – “The Property and Casualty Insurance Industry is in Crisis.”
Lately, there are almost as many sensational news articles about Property & Casualty (P&C) insurance as there are about Hollywood stars.
At Armed Forces Insurance, we’d rather have a frank discussion than dance around an issue, so this year, I want to discuss two insurance issues impacting our members in the current environment – Premium Increases and Limiting or Canceling Policies.
Premium Increases:
Our members pay premiums each year and most never have a loss. Our members commonly question why, without having filed a claim for years, they would get an increase in premiums.
The reality of insurance is that the premiums paid by our members are not set up like a savings account on a member-by-member basis to cover that member’s future loss when it occurs. Only a few members will typically have a loss in a year. Armed Forces Insurance spreads the cost of those losses to all our members by setting premiums only high enough to cover the losses experienced by our membership in a year.
For the members who do suffer a loss, the cost of rebuilding or repairing their homes and replacing property has increased significantly in the past few years due to the inflationary increases in materials, goods, and services. Builders and retailers can raise prices rapidly. However, insurance companies must go through a regulatory process to file with state insurance departments to increase prices, causing delays in getting needed price increases.
Weather related losses are another significant driver of premium increases. Historically, Armed Forces Insurance could reliably plan for about 10% to 15% of all losses coming from catastrophic weather events. While there was always an occasional year with a significant event, these losses averaged out over time, and adequate premiums were charged to pay for these losses.
In recent years, these catastrophic weather losses have risen sharply across the United States, with the trend appearing to escalate. Since Armed Forces Insurance must charge enough each year to cover the annual losses from members with losses, the amount needed to cover these catastrophic weather losses has increased significantly. More of our members are experiencing weather-related losses each year, and the severity of these losses is increasing, driving a corresponding need to increase insurance premiums. The increase in weather-related losses is an issue that the entire P&C insurance industry is working to address, predominantly through rate increases and the sharing of repair costs for certain types of losses with their members (or policyholders).
Limiting New Business and Canceling Policies:
Beginning in late 2023 and accelerating in 2024, almost every P&C insurance company in the United States stopped writing new business and/or canceled policies they had previously written. Armed Forces Insurance was not immune to these necessary actions.
As I noted, P&C insurance companies can’t just change prices. Insurance premiums are regulated at the state level, and every price change must be filed and approved by each state’s insurance department. Historically, state insurance departments have worked to balance individuals’ need for safe and secure insurance with insurance companies’ need to have appropriately priced policies. Unfortunately, many state insurance departments are not adequately addressing the need for premium increases fast enough to prevent unsustainable losses by the insurance companies doing business in their state.
When insurance companies incur unsustainable losses in a state or region for an extended timeframe, the only way to reduce these losses is to stop issuing new business and, in severe cases, cancel all the policies where premiums are consistently inadequate. These decisions are not wanted or desired by any insurance company. Yet, most P&C insurance companies in the United States have been put in the position of having to restrict or cancel business over the past year.
Advantages of being a Member of Armed Forces Insurance in a volatile insurance environment:
While we can’t reduce inflation, improve the weather, or fix systemic regulatory issues with pricing, Armed Forces Insurance sets itself apart by providing our members with unique advantages in this environment that other insurance companies don’t have.
- Subscribers Surplus Contributions mitigate pure price increases:
Our Exchange has the option to charge an annual subscriber’s surplus contribution. This option is only available to a Reciprocal Exchange like Armed Forces Insurance Exchange. This annual contribution is 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 subscriber’s surplus contribution to support the financial strength of our Exchange, bypassing the haircuts from taxes, fees, assessments, and other costs incurred if the amount were charged through premium increases. This feature of our Exchange is a unique advantage that allows us to provide quality insurance efficiently while keeping our organization strong.
- Armed Forces Insurance has More Insurance Options:
When Armed Forces Insurance members need assistance, our Dedicated Agents have more options than most insurance companies. In addition to our custom-designed Armed Forces Insurance Exchange policies, our Dedicated Agents have other insurance options with our 30+ Affinity Partners. At Armed Forces Insurance, we have an expansive product selection and resources to find more options for our members.
- Dedicated Agents find You the Best Value:
Insurance is a complex product with many constantly changing options and prices. In this environment, finding the best insurance value for a member’s unique situation is almost impossible without a trained and knowledgeable insurance professional with access to a suite of insurance policy options. That’s why Armed Forces Insurance members each have a Dedicated Agent to help find the best coverage and value for their unique situation. Your Dedicated Agent is here for you, so don’t hesitate to contact them.
The P&C insurance industry is in crisis. Insurance premiums are increasing and policy options can be limited, but at Armed Forces Insurance, our goal is to continue to provide the protection, service, and value our members deserve.
Thank you for continuing to put your trust in Armed Forces Insurance. I am confident that the P&C insurance environment will eventually stabilize. In the meantime, all of us at Armed Forces Insurance will continue to support and protect our members.
Our Mission is You.®
Arlen L. Briggs
President & Chief Executive Officer