“Where has the year gone?” It feels like this is a common question every year, and one that we find ourselves asking again as we put out our Q4 Bulletin. 2024 has been a unique year for the insurance market, particularly for Public Entities. Rate increases, coverage reductions and requirements to take on more risk in the form of retentions and deductibles. While the changes have been significant, we feel strongly that our clients are understanding the driving forces behind these and adapting appropriately to prepare themselves for the new reality of insurance purchasing and proper risk transfer. So, what’s ahead for 2025? Here’s 2 things we plan to look at with each of our clients…
1. The Insurance Market
We will be meeting with all our current clients in January/February of 2025 (if you’re in the client bucket, this is pre-scheduled and on your outlook calendar) to discuss this very topic of, “what are our premiums going to do next year?”. If your renewal takes place prior to July 1st, the information is relevant for FY25. If your renewal takes place July 1st or after, the information is relevant to FY26. In general, rates and valuations will continue to increase, but not at the pace they have been over the past 2-3 renewals (we hope). The below chart shows the entire property and casualty industry combined ratio. The ratio is essentially:
Combined Ratio: [Claims + Expenses] / Premiums Collected
Or in simplistic terms… “How many dollars are being paid out in the form of claims and expenses compared to every $100 of premium collected by the industry?”
A fair target for most large insurers in a regular market would be between 90-95 combined ratio for their specific company. An underwriting profit plus investment income is a good deal for the insurance companies, which allow them to look at offering more favorable rates and terms to grow their market share. A combined ratio of 100 or greater means that they are running at an underwriter deficit, or in theory losing money on their business. That’s not a good deal, and one that future insurance buyers pay for. Good and bad news for our Midwest Public Entities:
Bad News: Weather trends in 2024 have not improved, driving much of the high combined ratio even with increased premiums (see 2017-2023 note on the above chart). Below is a map of ‘Billion Dollar Events’ through October. Here are the numbers behind this…
Inflation-Adjusted Numbers for $1Billion or Greater Weather Events:
1980's: 3.3 Events/Yr
1990's: 5.7 Events/Yr
2000's: 6.7 Events/Yr
2010's: 13.1 Events/Yr
2019-2023: 20.4 Events/Yr
2021-2023: 22 Events/Yr
2023: 28 Events
2024 YTD: 24 Events [including Milton & Helene, two extraordinary losses each estimated to exceed $50B]
Good News: Most insurers we have our Public Entity clients with have required significant changes to pricing and terms over the previous 3 years. You’ve felt the pain of increased rates and changes to replacement valuations (generating higher premiums), you’ve taken on wind & hail deductibles, and you’ve assumed more risk on other lines of coverage. Because of this, we estimate that the financial experience of the insurers to show improvement and should lead to more stable renewals than we’ve seen in FY25, FY24, and FY23.
2. What Can I Control?
We often have clients ask us, “How do we pay less for insurance?”. While none of us are large enough to avoid the insurance market impacts, we can outpace the effects of them. How do we do that? In theory there are two solutions:
1) Have less claims (I can see everyone reading eye rolling this)
2) Buy less insurance (now the ears perk up)
The reality is you can’t do #2 effectively until you have #1 predictable and preventable. This is why with each of our clients we do an annual claims review meeting (again, if you are a client this is pre-scheduled on your outlook calendar) to review what our historical claims have been, talk through any areas of concern, close out any unnecessary serves that could impact future underwriting, and identify if there are any resources we should be implementing to drive down future insurance expense.
One area we’ve been utilizing often with our clients is our TrueNorth Loss Control team, which focuses on safety and workplace culture. Don’t be surprised if this is an area of focus in our conversations with you this year, whether you are a current or prospective client. Get Control Have Less Claims Take More Risk / Buy Less Insurance
An Option to Consider
First MainStreet Insurance's Public Entity Specialty Group team is looking to grow the base of the clients we serve throughout Iowa. We have a process that prompts conversation around what the current state is of your organization’s risk management and insurance setup, as well as ideas on how to improve that situation moving forward.
If you’re open to learning more, below are recommended next steps:
- Schedule an intro meeting with our team. This will allow us to learn more about your organization, share about our process, and mutually conclude if we might be a good fit to work together.
- Complete our abbreviated discovery assessment, which is a survey that provides us feedback on areas you are already supported well or that our team could help provide value. The survey takes approximately 5-10 minutes to complete.
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