Heath Ritenour Offers Insights On The Evolving Insurance Marketplace — Cargo Collective
Anyone who has looked at their business or personal insurance statement recently knows that insurance rates fluctuate. Those who have asked their agent or broker about an increase may have gotten a quick answer that there have been a lot of claims this year or that it’s a capacity issue. While those factors certainly enter into the equation, Heath Ritenour, CEO of Insurance Office of America, is quick to point out that claims and capacity are just a part of the complex set of components that drive insurance prices upward.
Ritenour explains the multiple factors that determine when insurance rates go up and down. As an insurance industry veteran and the son of an industry entrepreneur, Heath Ritenour has extensive knowledge and a unique point of view about the insurance industry. Here’s a summary of what he had to say:
Factors that go into determining insurance premiums:
1. Yield that insurance companies earn on their reserves
Insurance expert Heath Ritenour explains that a substantial part of an insurance company’s earnings come from the money it makes off of its reserves. Reserves are the funds that the company takes in as premiums, but hasn’t yet paid out in claims. By federal law, insurance companies are not permitted to invest these funds in the stock market. This is because stock market investments can be volatile and are not considered to be very liquid. However, these companies are permitted to invest in bonds.
Bond yields are down considerably. In 2018, a 10-year US Treasury bond was paying around 3% annually in interest. Today, that number is less than 1%. There’s nowhere that insurance companies can go with their money that has a higher yield. Therefore, the companies may raise premiums to help make up for the money that they aren’t getting in the bond market.
2. Market capacity
One of the things that policyholders may have heard from their agents and brokers is that insurance premiums are rising because of a tightening of capacity in the market. This may be a confusing concept for that outside of the insurance industry. Basically, capacity has to do with risk. There are three major insurance areas in the world — the United States, London, and, to some extent, Bermuda.
Both the London and Bermuda markets have had a dramatic increase in claims over the past year to 18 months. This makes them less willing to take on new risks, lessening the number of companies that are willing to divide up the risk in the US market. Fewer companies translate to more risk per company. More risk means higher premiums to lessen each company’s financial exposure. It’s kind of the insurance version of supply and demand. This concept can be complicated, but it’s an important part of the premium equation.
3. Natural disasters
Natural disasters like hurricanes, floods, and forest fires are bad for insurance companies because a large number of policyholders are affected at the same time. There were record numbers of natural disasters in the US in 2020. According to NOAA, there were 22 separate billion-dollar climate and weather disasters in the US last year.
That includes seven hurricanes; an unprecedented number of wildfire in Oregon, Washington, and California; and a host of tornadoes and several storms throughout the Midwest and Southeast. Combined, these disasters caused more than $95 billion in damage. While not all of this damage was insured, a majority of it was, and it cost insurance companies billions.
4. Social inflation
“Social inflation is what I call the increased climate for suing people and the increase in the settlement size from these lawsuits,” explains IOA CEO Heath Ritenour. Liability lawsuits today are settling for multiples of what they settled for just five years ago and more people are suing. The costs of these lawsuits and settlements are getting passed along to the consumers. “Until we have some sort of tort reform legislation, I don’t see this situation changing for the better.”
5. Cost of repairs
“Hardly any company is making money in the auto insurance business today,” explained Ritenour. That’s partly because of liability claims, but it’s also because auto repairs have become so expensive, even for a seemingly minor accident. Repairs that a few years ago might have cost a few hundred dollars now cost a few thousand. That’s because the technology on vehicles has become so complex. You have to replace electronic sensors as well as fenders.
Again, higher claim costs end up costing consumers more in premiums. “One of the nicest things you can do for your auto insurance company today is to purchase another policy from them. Those auto policies are just not paying the bills and there’s a limit to how much companies can charge consumers and still have them purchase more than basic liability insurance for their vehicle,” offers Ritenour.
The Bottom Line
Insurance pro Heath Ritenour is quick to point out that a hardening insurance market is tough on many business owners today in this COVID-19 environment, where their revenues have likely not returned to pre-COVID levels. That’s why he is trying to educate both consumers and the company’s insurance partners so that people will understand the need to increase premiums and also the need to make sure that they are adequately protected from increasing liability and natural disaster risks.
About Heath Ritenour
Heath Ritenour has spent his entire life surrounded by the insurance business. His parents, John and Valli Ritenour, founded Insurance Company of America in 1984 when he was still in elementary school. He joined the family business in 1996, starting out as an agent. Heath Ritenour became CEO of the company in 2008 and Chairman in 2018. During his tenure, the company has grown to be the 11th largest privately-held insurance company in the United States.
Heath Ritenour is also the President of the IOA Foundation, the charitable arm of the company. The IOA Foundation is actively involved in giving back to the Central Florida community through fundraising drives, charitable events, and sponsored sporting events, such as the LPGA’s IOA Classic. A cancer survivor, Heath Ritenour works with and actively supports other people in the community who are going through cancer treatment.
Originally published at https://cargocollective.com.
