It’s no secret that insurance rates have skyrocketed over the last few years, adding unforeseen financial burdens to people and businesses. Single-family homeowners, homeowners’ associations, automobile drivers, and other insurance consumers are painfully aware of how expensive it has become to protect themselves and their assets. According to the Bureau of Labor and Statistics (BLS) Consumer Price Index, the cost of auto insurance alone has increased 40.8% since January of 2020.
Insurance for timeshare resorts is no exception. As these insurance costs rise, owners are faced with higher maintenance fees to make up for the increases.
Why is This Happening?
Many things have come together to create a perfect storm in the insurance market. First, inflation is a major factor in these increases. According to the U.S. Bureau of Labor and Statistics (BLS) Producer Price Index (PPI), the price of construction materials has increased 44.5% since January 2020 and the PPI for homeowners’ insurance premiums has increased 13% since February 2019. As a result, many insurers have sought increased premiums in their rate filings with state regulators across the country.
Another reason for the spike is the increased cost of reinsurance. Reinsurance is insurance for insurance companies. The concept sounds odd, but reinsurance is a way for insurance companies to keep premiums low by reducing the amount of cash they need to have on-hand to pay out claims. Many reinsurance policies renew at the beginning of the year, and some reinsurance premiums have increased up to 50% since January. In some places, reinsurers have stopped offering policies altogether. This has led some insurers to withdraw from certain markets, too.
These factors have created a situation where insurance premiums are increasingly expensive or, in the worst-case scenario, policies are completely unavailable.
What can be done?
Ultimately, inflation and the reinsurance market need to normalize for premiums to come under control. However, some legislative solutions have sought to attempt to ease the pain for consumers and businesses.
State governments are searching for legislative solutions to the insurance crisis. Over the last year, more than 9,000 bills on insurance have been filed in state legislatures. These bills have focused on various insurance-related issues including insurer regulation and cost reduction. Notable examples include Florida’s SB 2A, 4A, and 6A (2022), which create a statewide reinsurance program, home-hardening programs, and address prompt payment by insurers.
SPB 7052 Insurer Accountability (2023) and HB 837 Civil Remedies (2023) are other examples from Florida. These bills grant the Office of Insurance Regulation greater authority to conduct market examinations of Insurers, prohibit cancelation of policies under certain circumstances, restrict directors or officers of insolvent insurers from receiving bonuses, and crack down on frivolous litigation against insurers, among other things.
There are also proposals at the federal level such as H.R.3525 — 118th Congress (2023-2024), the Natural Disaster Risk Reinsurance Program Act, that would create a state-federal reinsurance assistance program within the Treasury Department.
ARDA-ROC is actively involved in monitoring insurance-related legislation and providing comments when it affects timeshare resorts and associations. There is no panacea to immediately fix the problem, but these incremental improvements (and a few years with less catastrophic loss events) should help over time.