Natural Disasters & Captive Insurance – Are You Effectively Covered?

Insurance companies in California were kept extremely busy in the second half of 2017 after wildfires swept through the state.

Northern California saw a series of fires in October, while the South – including Los Angeles and San Diego – was similarly affected in December.

According to the Property Casualty Insurers Association of America, this was the costliest wildfire season the state has experienced, leading to property insurance claims in excess of $12 billion.

A 2013 report from Lloyds of London estimated that coastal parts of southern California – with their steep slopes, highly flammable shrub vegetation and increasing population density – puts around 5 million properties in areas deemed high risk for wildfire damage.

It’s therefore no surprise that, following the fires, over 10,000 claims for partial and total property losses have been made.

Insurance companies are still working through the backlog, with homeowners experiencing delays on decisions due to both the volume of claims and their complexity.

Changing expectations for insurers

With both homeowners and regulators fearing further out-of-season wildfires such as these, expectations of when and where such incidents will occur are evolving.

Interestingly, Californian state law gives insurers more flexibility when it comes to dropping coverage entirely, rather than simply raising the rates.

Some leading industry figures, such as California Insurance Commissioner Dave Jones, have raised concerns after some insurance companies are already moving forward with this approach.

Insurance depends on the effect of ‘large numbers’. Insurance companies want to have enough premiums coming in throughout their portfolio of business so that, should something occur, they have enough money in reserve to deal with it.

However, with the wildfires coming in the same year as a number of other natural disasters, including a devastating hurricane season, 2017 has been a particularly expensive year for insurers.

Captive Insurance for natural disasters

With the USA seeing more natural disasters that are in turn causing more damages, it’s important that business owners take proper steps to make sure they are adequately covered through insurance.

Not only that, it’s also crucial that their claims are paid out on time and in the correct amount so that a business can be back up and running as soon as possible.

These developments should lead to business owners asking: “Am I insured in the most effective way for my business needs?”

For many that are asking this question, ‘Captive Insurance’ – where businesses bypass larger insurance companies and set up their own insurance policies – is becoming more popular in the United States as business owners look to take greater control over their risks.

A Captive Insurance company is one that has been set up for the specific purpose of providing real-life insurance coverage to your business. It is a means of quantifying exactly how much you wish to self-insure your business for and offers you the most efficient way of doing it.

This element of control allows you to customize a policy to include coverage for natural disasters that are common in your immediate areas, such as tornadoes, convective storms, hurricanes, or earthquakes.

Using an insurance captive gives a company an advantage financially. By determining for yourself exactly what you want coverage for, you can avoid coverage from commercial insurers that might be either too expensive or too restrictive for your business needs.

In other words - with Captive Insurance, you can control the cost of the premiums while remaining adequately covered.

Hartwell Captive

At Hartwell our mantra is that, while that others ‘talk about’ innovation, we ‘do’ innovation.

What do we mean by that?

We mean that in order to be innovative you have to be flexible, you have to have an open mind and it really helps to be independent.

All of these things apply to Hartwell Insurance - but those things aren’t enough in themselves. You have to be able to create effective programs and solutions for the Broker and their clients.

You have to have the ability and experience to do that AND to be willing to work with the Broker to create bespoke insurances for each situation that clients face.

That’s the very essence of ‘innovation’!

After the wildfires in California, many Brokers will be facing increased retentions and possibly increased premiums.

If you want to see how best to manage an increased retention effectively for your client, talk to us about Retention Manager.

If you want to manage the increased claims activity on the account and present insurers with a clean renewal, Hartwell Profit Maker may be of interest.

Finally, we can use our own paper to underwrite the business – if that sounds like the right approach for you, then look into Hartwell Captive.

At Hartwell Insurance we focus on providing Brokers with the support and expertise that helps them set up effective insurance policies for their clients - how to use them, how to set them up, how to run them, and how to make them as effective as possible.

Whatever the method, whatever the problem, you can be sure that Hartwell will be there every step of the way to help give you best advice.