I’m not going to be much help either – I sold my business and retired in 2017.
I developed and wrote an insurance program for restaurants, bars and taverns in four states – AK, CO, OR & WA – and was about to add CA when some fool met my price. Or at least I thought he was a fool. Two to three years after I sold out, I’m told that rates had doubled. I was making my carrier money at the old rates. If I hadn’t sold when I did, Elon Musk would now be my caddy and Twitter would now be called Yoda-eee. Heavy Sigh…
Anyway, I can not explain it all to you because I don’t know that much more than you do. You do seem to have a fairly good handle on it. I’d add that climate change (without debating whether or not it is man caused) accounts for some of it. Several carriers have pulled out of California and other high fire areas, or seriously restricted their writings. Same with southeastern coastal states, as hurricanes seem to be increasing in frequency and intensity.
Companies are laying off more risk to their reinsurers and I’d guess that they’re being more careful about who they reinsure with.
I had dinner one time with Warren Buffett. More accurately, I and about 80 of my closest total strangers, had dinner with him. There were ten tables of eight, all of whom underwrote for one of his insurance companies, and eight courses so two unlucky tables missed out. But I had the salad course with Warren Buffett… Apparently he did this each year, just before the Berkshire convention and he used the occasion to polish some portion of the speech that he would be giving.
Anyway, he spoke of something that I’d never heard of before – something he called “bulls.hit reinsurance”. In order to show strong financials, and secure a solid “Best Rating”, you cannot take on too much risk (relative to your assets). That’s too much total risk and too much risk of any one type. So carriers lay off that risk to reinsurers.
The problem is, in good times, carriers want to write all the insurance they possibly can and they don’t want to lay if off to reinsurers. So what happens is that you end up with (say) 40 carriers all reinsuring each other on the cheap. Then if a big hurricane hits, for example, they all go belly up because none of the reinsurance is collectible. There was no real reinsurance there; just a circular firing squad that looked like reinsurance.
My point is that with more and bigger cat losses, real reinsurance becomes more and more critical to financial survival. It’s possible that carriers on their own are abandoning bulls.hit reinsurance in favor or real reinsurance – or that regulators or the rating agencies have cracked down on it and are no longer allowing it to be used to justify a false financial picture. That would drive up costs a lot.
And I also have no doubt that insurance companies will take whatever excess profits they can get. You don’t have to have a zoom meeting to agree to raise prices.
I have one more Warren Buffett anecdote. Anybody still reading and want to hear it?
