Across the United States and around the world, insurance rates are rising due to factors including climate-related disasters, crime and civil unrest.

State governments that want to protect businesses and consumers have stepped in to curb rising rates, but that has prompted some larger insurers to lose confidence in their ability to cover claims and pull out of certain areas.

Hurricanes, floods and wind

In portions of California, Florida and Louisiana, some insurers have opted not to write new policies or renew existing ones. In these “uninsurable areas,” states have endorsed companies to provide coverage “of last resort,” but these policies can be extremely costly. The choice between risking the fallout from a disaster and purchasing expensive insurance is not an enviable one—both personal and professional property investments take a toll.

“After Katrina, and more recently with Hurricane Ida in 2021, Allstate and State Farm wouldn’t write new policies,” said Shawn Martinez, executive director of the Southern Louisiana Chapter NECA. “A lot of the insurance hit is on homeowners, but most of the state of Louisiana is a high-risk flood and wind-damage risk area. The rise in rates affects everyone here, including businesses.”

Roofing, fencing and vehicles tend to be the most vulnerable to high wind damage, Martinez said. While the state provides grants to homeowners for roof repair, commercial property owners are not so lucky.

“That puts more of the burden of absorbing costs and recovery on us, which is unfair,” Martinez said.

Other factors driving up insurance rates for ECs in Louisiana include material theft from job sites, vehicle break-ins and related tool theft and insurance fraud committed against commercial drivers.

“People have purposefully gotten into accidents with commercial vehicles displaying company names and contact information on the sides because they knew claim payouts would be more than with the average motorist,” Martinez said.

Some contractors have attempted to thwart this criminal practice by using unmarked vehicles and applying magnetic logos at job sites, but this is outlawed in some municipalities, including New Orleans, Martinez said. For now, he believes ECs can best help themselves by employing their usual stringent safety practices to avoid claims, taking measures to harden properties and make them storm-safe and communicating concerns about rising rates to insurance providers and state legislators.

Fires

In California, wildfires are driving rates, said Brian Murphy, senior vice president and construction practices leader for Heffernan Insurance Brokers, Walnut Creek, Calif.

“Wildfires are happening with greater frequency than ever,” Murphy said. “The very definition of wildfire-exposed areas is constantly changing and expanding. Areas not considered wildfire areas before are considered that now.”

Last October, California’s Department of Insurance (CDI) expanded coverage available through its FAIR Plan, the state’s insurer of last resort. Commercial coverage of up to $20 million was made available to homeowner associations, condo associations, farms and businesses unable to secure insurance through the regular market.

CDI launched an effort to keep private insurers from cherry­-picking clients and leaving distressed areas uninsured. For example, if a company writes policies for 20 out of 100 homes statewide, the state also requires it to insure at least 17 out of 100 in distressed areas.

FAIR Plan’s new rules mandate that insurance companies in California reward businesses by submitting new rates for wildfire mitigation efforts, such as “defensible space” (a fireproof buffer area around the perimeter of the property), upgraded roofs and windows and memberships in fire-protection programs such as NFPA’s Firewise USA, which supports adaptation to living with wildfire.

ASF Electric Inc. rents its headquarters in Daly City, Calif. The building is fully sprinklered and less than 2 miles from a fire station,  but the landlord noted a sixfold increase in fire coverage and will likely pass on the increase once the current lease ends in 2024.

Nonproperty coverages have increased as well.

“Our premiums for general liability, auto coverage and worker’s compensation went up 20%,” said Cathy Ferrari Lagomarsino, ASF’s president. “That’s with no claims in the last year. We have a really good claims record.”

Things could be worse, though. 

“It helps that we’ve cultivated a strong working relationship with our insurance agent,” Lagomarsino said. “That enabled us to provide more accurate information about our company for underwriters so our rate increases were less severe.”

Heffernan has worked closely with ASF Electric in serving the company’s insurance needs since 2005 and consistently provides advice for curbing rates.

A main tenet: “Don’t wait for the new rates to come out,” said Debra Costa, senior vice president and vintner practice leader for Heffernan. “It’s important to press for rate reductions in advance, based on new risk-reduction measures or unique circumstances.”

A major factor driving rates is that insurance companies typically purchase reinsurance policies to cover large claim events. This practice also helps them stabilize underwriting results and protect their balance sheets, Costa said.

“The reinsurance market is all behind the scenes,” Murphy said, “but the need to reinsure more is definitely being driven by wildfire, hurricanes, wind, flooding and freeze events.”

“Reinsuring is a common practice, but it’s gotten very expensive, resulting in less capacity to cover claims,” Costa said.

Risk-modeling software

Another issue driving rates is the risk-­modeling software the insurance industry uses to assess and predict risk. It’s changing the landscape of how insurance companies calculate premiums, Costa said.

“Often, insurance companies are relying on modeling that paints an unfair picture for a specific risk because they are being evaluated at a macro level and not on the individual risk characteristics,” Costa said. “Good brokers have a responsibility to tell the story of their client to insurers to help offset the risk modeling.”

ASF’s location offers an example of the potential for insurance modeling inaccuracies and “broad-brush” calculations, Costa said, adding that it’s in an urban area near a freeway and surrounded by lots of cement. However, modeling would show it having a higher risk due to proximity to mountains considered prone to wildfire.

“We’re not in a dry area,” Lagomarsino said. “The fog comes in at night and the ground is moist. We’re not in a wild area either. There’s concrete and fire hydrants everywhere.”

Despite current distortions, software risk modeling is here to stay. Costa predicts it will become more accurate and specific to individual addresses and will consider and measure data points not currently used.

Risk mitigation efforts

While California plans to employ pricing models that integrate climate risk, the state is also educating owners about how their property is viewed by insurers and measures they can take to reduce rates.

Heffernan encourages commercial property owners to consider risk-­mitigation measures such as ember-proof vents for HVAC systems, gutter guards, defensible space management, mobile external sprinkler systems, fire retardants and foams and weather-monitoring devices.

Coverage for business properties and job sites is also getting more expensive.

“The pricing and market capacity pressures for contractors come mostly from property insurance placements—
commercial property policies and builders risk policies,” said William Moorer, assistant general counsel and vice president of legal operations for Miller Electric Co., Jacksonville, Fla. “This is especially the case for contractors in Florida and other coastal [Tier 1 Wind] areas of the country.”

Like ASF Electric, Miller Electric is able to limit property risk by leasing its locations. Also, the company is comfortable with the tendency of general contractors to be more likely to handle job-site coverage, with electrical contractors serving as subcontractors.

For job site liability coverage in California, however, Lagomarsino suggests using “owner-controlled” insurance policies that require the general contractor and subcontractors to pay according to their level of liability and involvement.

Such policies offer coverage for the duration of construction projects plus whatever period a state designates for the statute of repose or limitations, Murphy said.

Distracted driving

Beyond addressing climate-related risks, business owners can also curb rising insurance rates by mitigating risks related to distracted driving—a leading cause of large insurance claims for many industries.

“We’ve seen big changes in auto and excess liability coverages over time,” Costa said. “With social inflation we’re seeing larger-dollar
settlements. Awards have skyrocketed!”

Substantiating this in Florida, Moorer said, “Where we do see pricing pressure is our excess liability placements. This is primarily because of our auto/fleet exposure, and recent auto ‘nuclear verdicts’ in the eight-figure and even nine-figure ranges.”

Forty-eight states have banned texting while driving, but enforcement remains a thorny challenge. The National Transportation Safety Board acknowledges that controlling driver behavior is paramount to curbing accidents. The board also recognizes that employers have leeway to restrict cellphone use while driving.

This relates to the circumstance of “at-will employment,” which means an employer can fire an employee for any reason that isn’t illegal or protected by employment laws.

To curb distracted driving, electrical contractors have used apps and software that measures phone use, speeding, hard braking, rapid acceleration and harsh cornering.

In-cab cameras also can detect distracted driving as well as texting and talking on cellphones. Platforms that connect to GPS and assist with routing to jobs can also help determine a driver’s innocence if a collision occurs.

Though some employees have resisted these technologies initially, they have been enacted successfully.

There are still other ways to reduce insurance-related risks, including carefully considering projects and work-related opportunities. 

“It’s important to evaluate how much risk you’re willing to take on,” Lagomarsino said.

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