INSURANCE Affordability Availability &

by Roby Brock

Rapidly rising premiums and reliable carriers to issue insurance are of growing concern to Arkansas lawmakers, bankers, industry officials, business owners and consumers of all walks of life.

At a March legislative hearing at the Arkansas state capitol, legislators quizzed the state’s Insurance Commissioner as well as national and state insurance representatives, and CS Bank President and Chief Lending Officer Jason Tennant.

Describing current insurance conditions as a “hard market,” Arkansas Insurance Commissioner Alan McClain told lawmakers that rising premiums and carrier reliability is a national problem.

“As you’re likely aware, property insurance premiums have been increasing significantly and anytime this happens, there’s a burden on almost every Arkansan and we’re sensitive to that at the insurance department,” McClain said. “A review of insurance news would quickly illustrate that Arkansas is not alone as we face these unprecedented conditions in market behavior.”

There are a number of contributing factors to rising insurance premiums. For starters, catastrophic weather conditions have hammered insurance payouts. Compounding the number of claims due to weather-related incidents is the inflationary costs of materials and labor to replace lost property. Construction materials have risen as much as 42% over the past three years, wages have accelerated, and supply chain kinks have slowed repairs to a crawl in some instances.

In short, there have been more losses than calculated, and premiums – which are normally adjusted annually – haven’t been able to keep up. The situation is likely to get worse before it gets better.

In early March, the largest insurance credit rating agency in the world AM Best downgraded their outlooks on personal lines, auto insurance and homeowner insurance to “negative” and noted that “underwriting profitability over the near term appears highly unlikely.”

McClain said that the Arkansas insurance companies he regulates saw average loss ratios in homeowners insurance hit 121% in 2022 and 131% in 2023. As of December 31, 2023, insurers had paid over $489 million from claims just related to the March 31, 2023 tornado events in central and eastern Arkansas. That calamity was followed up with additional severe weather and hailstorms in the spring and summer.

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“On the average, our insurance carriers are paying out more than they’re bringing in. So it’s just kind of simple math,” McClain said.

Tennant brought to the attention of lawmakers how the insurance disaster is impacting banks, especially the mortgage business.

Homeowners often have their home insurance collected in escrow and pay through their mortgage payment. That’s a fixed amount, in most instances, but spiraling insurance costs are going to complicate this process.

“We’re seeing the deductibles become a real factor in a lot of the insurance that’s there because they are primarily going to the percentage of the value of those buildings and those properties,” Tennant told lawmakers. “Our concerns are the impact and the suddenness of this impact, especially to the homeowners that are out

AVERAGE LOSS RATIOS IN HOMEOWNERS INSURANCE HIT AND 121% in 2022

131% in 2023

INSURERS HAD PAID OVER $489 MILLION FROM CLAIMS JUST RELATED TO THE MARCH 31, 2023 TORNADO EVENTS IN CENTRAL AND EASTERN ARKANSAS there because so many of these people escrow their taxes and insurance, which as you all know, that ties into your monthly mortgage payment.”

He highlighted another area where the insurance crisis is proving difficult. For agricultural clients, insurance carriers are adapting policies to spread risks and increase premiums in order to strengthen underwriting. But that comes with a consequence.

“We’re a big ag lender. We are big in the poultry business in Northwest Arkansas. The changes to insurance for the farmer has poultry houses where the deductible is now per house instead of just one big blanket policy,” Tennant said. “So if you’re a farmer that’s raising chickens or turkeys and you’ve got six houses and you have damage to five of them, suddenly there’s a $5,000 deductible on each house.”

Tennant warned that while these examples are happening in real-time, he fears the worst is yet to come.

“It really hasn’t affected the market too badly yet because it’s pretty new, but it’s a headwind that I think has got our industry very concerned and I think it’s something that’s going to be impactful coming down the line,” he said.

It’s unclear what can be done at the state level. For now, lawmakers are responding to constituent concerns over the rising premiums and are awaiting more data and national direction.

Commissioner McClain said the National Association of Insurance Commissioners has launched a 90-day data collection effort from more than 300 property insurers across the U.S.

“We’re asking for 70 data points for our insurers to report to us. So ultimately, we hope to answer what’s driving affordability and availability,” McClain said.