PEORIA MAGAZINE November 2023

SPOTLIGHT

STORMY TIMES FOR INSURANCE AGENCIES

Given the ‘severe and erratic weather,’ Pekin Insurance suspends writing new home insurance policies in Illinois

BY STEVE STEIN

I t’s climate change. It’s inflation. It’s a combination of both. Whatever the reason, one fact is plain as day. The property insurance industry is suffering financial losses because of that one-two punch, and Peoria-area and other homeowners across the country are up against the ropes. ‘WHEN A TORNADO DEMOLISHES A HOME VALUED AT $350,000, IT TAKES First Street Foundation, a not-for profit organization based in New York that examines the financial implications of climate change, recently estimated that about 39 million properties, a full quarter of American homes, have underpriced policies based on their climate risk and are facing measurable premium increases. The credit rating agency AM Best recently calculated that the U.S. home owner insurance industry lost $24.5 bil lion during the first half of 2023, about the same amount it lost in all of 2022. Joel Jackson is the senior vice pres ident and the chief operating officer 233 CLAIM-FREE HOMES FOR US TO COVER THE COST OF ONE CLAIM’ — Joel Jackson

of Pekin Insurance. While noting that the number of “cat storms” — anything identified by the Insurance Services Office’s Property Claims Services unit as a catastrophe — Pekin Insurance has dealt with has been about the same annually since 2010, with a slight uptick to 14 cat storms with a cost of $151 mil lion this year, Jackson said “the biggest problem we’re facing is inflation. “The simple fact is, the cost to settle a claim has gone up so much, and when we raise rates to battle inflation, it takes us two years to get to the suitable rates on existing policies,” he said. “Is climate change real? I don’t know. But what I do know is that convective storms in the Midwest are a major influencer on the financial performance of our company.” THE MATH ISN’T WORKING Jackson points to three areas of concern: exposure to severe weather events, the cost to cover the claims from an event, and adequate insurance rates. Exposure refers to physical things such as homes, apartment buildings, condo minium complexes and cars that are impacted when a storm rolls through. “To illustrate, the average premium on a home policy we write is $1,500,” he said. “When a tornado demolishes a home valued at $350,000, it takes 233

claim-free homes for us to cover the cost of one claim.” The cost to cover the loss of a home or other property damaged by a weather event has increased exponentially be cause of inflation, Jackson said. Labor, materials and parts prices are skyrock eting and supply chain shortages are adding to the bottom line. As for adequate insurance rates, Jack son said insurance companies measure their financial success based on what is known as a combined ratio. “We target a 100% combined ratio, which means for every $1 of premium collected, we pay out $1 in claims,” he said. “Anytime that ratio exceeds 100%, the company is paying out more money in claims than it is collecting in premiums paid. As the cost of claims continues to Joel Jackson is the senior vice president and chief operating officer of Pekin Insurance

36 NOVEMBER 2023 PEORIA MAGAZINE