Navigating the Stormy Waters of Catastrophic Weather and Rising Insurance Costs

By Lauren Dallas, Personal Lines Manager

Michigan is now approaching the point of being considered what we in the insurance industry call a "catastrophic state," due to a significant increase in weather-related incidents. A surge in severe weather events has led to a spike in property claims, causing ripples throughout the insurance industry and is impacting both personal and commercial property owners. 

This “ripple effect” is making waves across the state of Michigan, from insurance industry experts to insurers and from agents to policyholders. As independent insurance agents, we are frequently called upon to counsel commercial and residential property owners to provide practical advice for mitigating the rising cost of insurance premiums, as well as implementing strategic measures to counter their effects on the policyholder’s bottom line.

Root Cause: The Rise in Catastrophic Weather Events

Michigan's weather has become increasingly unpredictable and severe. According to data from the National Oceanic and Atmospheric Administration (NOAA), our state has experienced a notable uptick in severe weather incidents over the past decade. Specifically, Michigan saw a 35% increase in major storm events from 2010 to 2020. In 2021 alone, Michigan endured multiple significant weather events, including severe thunderstorms, floods, and even tornadoes, which contributed to a sharp rise in property damage claims. More recently, a rash of wildfires tore through the state, inflicting more damage to both property and wildlife.

Such events bring multiple impacts to the industry and the people it represents:

• Property Claim Frequency: The Insurance Information Institute reports that Michigan's property claim frequency has increased by approximately 25% over the past five years.
• Financial Impact: The total cost of weather-related property damage in Michigan has surged by over 40% in the last decade, with insurance payouts reaching unprecedented levels.
• Flooding and Water Damage: Flood-related claims have nearly doubled, with urban flooding becoming a common occurrence in cities like Detroit and Grand Rapids.

Many industry observers attribute the increase in severe weather events to climate change. According to the Intergovernmental Panel on Climate Change (IPCC), the warming climate is leading to more intense and frequent storms, heavier rainfall, and rising temperatures — all of which contribute to the increased incidence of weather-related property damage.

The Impact on Policyholders

The rise in catastrophic weather events and the subsequent increase in property claims have led to higher insurance premiums for both personal and commercial property policies. Insurers must adjust their risk assessments and pricing models to account for the increased likelihood of significant weather-related claims. Those adjustments have resulted in the projected higher costs of doing business being passed along to the consumer.

Many factors contribute:

• Higher Claim Payouts: With more frequent and costly claims, insurers need to collect higher premiums to maintain their financial stability.
• Reinsurance Costs: Insurers often rely on reinsurance to mitigate their own risk and exposures. As reinsurance costs rise due to increased claims, these costs are passed down to policyholders, in part.
• Risk Assessment Adjustments: Insurers are using advanced modeling techniques and artificial intelligence to reassess risk levels, often leading to higher premiums for properties in high-risk areas, such as Michigan.

What You Can Do in Response

While rising premiums can be challenging, property owners can take several steps to help keep their insurance costs in check, such as:

• Implement Risk-Mitigation Measures: Investing in property improvements, such as storm shutters, reinforced roofing, and improved drainage systems can reduce the risk of damage caused by catastrophic weather events, and may even work to lower premiums.
• Maintain Adequate Coverage Levels: Work with your independent insurance agent to regularly review and update your insurance coverage to ensure it reflects the current value of your property and any recent improvements.
• Shop Around: Work with an independent agent (like Gompers, Cornish & Barr), not beholden to any one particular insurance carrier, to compare insurance quotes from multiple providers to find the most competitive rates and the most advantageous coverages and terms.
• Bundle Policies: Consider bundling multiple policies, such as home and auto insurance (and even personal umbrella policies), with the same insurance company to take advantage of multi-policy discounts — the biggest discount insurers will offer to policyholders.

The state of Michigan is grappling with the reality of becoming a catastrophic state due to the increasing frequency and severity of weather-related events. As weather patterns change, property owners must adapt to the evolving industry landscape. By understanding the factors driving rising insurance premiums and taking proactive steps to mitigate risk, property owners can better manage their insurance costs while protecting their assets for whatever Mother Nature has in store.

If you would like to review your current property insurance to determine if you are getting the best coverage available at the lowest premium, please contact us and we will be happy to provide you with a complimentary assessment of your policy.