(June 7, 2024) – According to AM Best, the United States property casualty insurance industry recorded aggregate underwriting losses of $21.2 billion in 2023. As bad as that may sound, it's an improvement over total industry losses of $24.9 billion in 2024. If there's a story behind these steep losses, it is that Severe Convective Storms (aka wind and hail) continue to set new loss records seemingly every year. In fact, SCS generated nearly $58 billion in total insured losses in 2023, making it, by far, the costliest year for SCS in United States History, according to AON.
This may lead one to believe that severe weather is becoming more severe, more frequent, or both. Although that possibility certainly exists, another explanation is also evident - inflation. In a relatively short time, Conrade Insurance Group internal data observed the average cost of new hospital construction increase from $350/sq ft in 2019 to approximately $700/sq ft in 2024. Similarly, they have seen the cost of a new, correctly installed TPO roof roughly double from $5/sq ft to $10/sq ft over the same period of time. Simply put, the hailstorm that did $500,000 of damage to your hospital in 2019 may do $1,000,000 damage today. When taking these drastic cost escalations into account, this can better explain why Severe Convective Storms are setting new loss records seemingly every year.
By now, we’ve all become familiar with the volatility in the property insurance marketplace over the past few years. As time passes, this volatility is best understood through the lens of insurance carrier reactions to the inflation that has severely impacted loss costs. And to some extent, the anticipation of further escalation of inflation-driven loss costs.
So, what should a Kansas hospital do to protect themselves right now? Two factors have proven to be advantageous in this trying property insurance marketplace:
- Avoid Severe Convective Storm losses altogether. To some extent, this is simply a matter of good (or bad) luck. However, there is a noticeable connection between roof age and claim likelihood. Investments in the upkeep of your physical plant – especially roofs – are as likely to provide ROI as at any time in history.
- Sustainable insurance relationships. One of the more difficult positions to find yourself in right now is in search of new property insurance. Many carriers are unwilling to write new coverage for a risk profile they would otherwise be willing to renew if it was business already on the books. Terms and conditions have had to adjust to meet these inflation-driven loss realities, but capable insurance brokers are finding solutions for Kansas hospitals - even those with tough losses. The KHSC Chubb property insurance program provided by Conrade Insurance Group is a good example of sustainability in this volatile era.
If you have any questions about your hospital’s property insurance, please don't hesitate to contact Chris Conrade, Conrade Insurance Group Inc., for a consultation.
--Steve Poage