How Does Harvey And Irma Affect Our Insurance Premiums?

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What an awful time we have seen over the last three weeks. Three tropical storms starting off from the coast of Africa and churning its way while lapping up the warm waters of the Caribbean. With all that moisture and favorable winds, we soon saw the likes of never before. Hurricane Irma was the largest ever seen, measuring a category 5 following closely behind Harvey, just three weeks before.

Irma devastated Barbuda, St Martin, many parts of the Caribbean, and then headed off to the Florida coastal cities all across to Jacksonville where it wreaked havoc on everything that was in its path. Those of us who have families prayed that Jose, another hurricane following Irma’s path, didn’t make significant landfall.

What a three weeks we have seen, Harvey devastating Texas, Irma the Caribbean/ Florida, and Katia on the Mexican coastline. The damage has not yet been assessed but will be in the billions and the hurricane season is not over. Our prayers have been answered for some, but for many, they suffered a different fate. There have been flattened homes, totaled motor cars, boats and tragically loss of life. All are replaceable of course with the exception of life, while everything can be insured, not everything can be replaced.

For those things that are replaceable, namely houses, cars and boats, most persons would have some form of insurance on them, fill a claim form and the insurance company will recover or indemnify you to your original position. However, this is the important point, the monies paid to indemnify all those who have lost possessions do not come from the profits or savings of insurance companies, they come from a collection of premiums from all those who pay premiums.

The principle of insurance is a pooling of risk and a pooling of premiums. This means that the risk that the insurance company takes on, whether it is insuring your house, your car or your boat is pooled with everyone else’s house, car, and boat. Sometimes an insurance company may not want to take the risk on all by itself, so it goes to what is known as a reinsurer which is the secondary insurer. This reinsurer is typically a very large company that covers many of the small companies. This is where your insurance premiums can be affected. 

The reinsurer having paid out a lot of monies for property damage then takes his premium up for what is represented as losses. Your insurance company, in turn, passes that cost on to you. The reinsurance company covers worldwide, so when a catastrophe like Irma or Harvey happens, it is expected that the overall cost will go up. Ultimately, you end up paying a higher premium for something that you may not have had any connection with or any fault of yours, it’s just the way it works. However, this principle is not all negative, due to the large spread of people in the pool an insurance company can quickly recover from these losses and soon reduce premiums to standard cost.

Insurance premiums for property can always fluctuate on an annual basis based on claims. The only insurance that doesn’t fluctuate annually is your life insurance, but the cost nonetheless is still affected by the number of claims.


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