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FROM THE EXPERTS: The Insurance Man Cometh: Why you’re seeing increasing costs

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Sponsored content by American National | Jonathan Fortenberry

I’ll seek to end this article horse-related, but first I need to lay a foundation. Including myself, most of us are seeing increasing costs everywhere. Hay, feed, diesel, groceries… everything is up. So just to keep things level in our households or businesses, we have two options: raise revenue (make more) or lower expenses (cut costs). That doesn’t account for accomplishing our growth or savings goals. That’s just to keep results the same as before these increases. 


Insurance companies aren’t exempt from the same things we are feeling. To some degree, they are at a disadvantage when it comes to how quickly things have changed. Let’s start with actuaries. These are really smart people that probably went to MIT, and they are really good at math. They make decisions based on blocks of time, usually 5 years or so. If we go back to 2020, they would have been looking at information from 2014-2019. In that block of time, we had fewer storms than we’ve had recently, and we didn’t have massive inflation in a very short amount of time. So they would set rates, or insurance costs, based on having enough money to pay claims and overhead costs with that information. 


In 2021, they discovered people had driven much fewer miles due to quarantines, so many companies went as far as issuing refunds on auto policies. Since everyone was home, there were a ton of home renovation projects or outbuildings constructed. Coupled with quarantine-based supply chain issues, this high demand for materials sent building costs through the roof. Throw other pandemic-related financial decisions in and we wound up in a high inflationary, high demand environment. And on top of that the increase in storms and weather-related losses. So in the last few years, companies have planned to bring in a certain number and have been faced with paying out much higher numbers than anticipated. That left most of them scrambling to find a plan to rebalance. Whew, let’s take a collective deep breath. 


So now we know strictly from a cost standpoint, the rates have had to go up and some companies have just decided to stop issuing policies in certain loss-heavy states or certain types of policies altogether. What do we do? How do we handle the situation we’re in? 


There are only a few companies that understand the horse lifestyle and what it takes to participate in it. That’s why you see limited companies that want to insure boarding, training, and riding lesson operations. Or why limited companies are okay with you having several large animals at your house. I would encourage you to use a company that understands your lifestyle and knows how to insure your properly. There are some really good ones out there. 

Second, I would not underinsure my stuff. That may save money now, but will absolutely cost an arm and a leg at claim time, if you have one. Please ask your company to insure your barns, arenas, and homes at replacement cost. Have the ability to replace that structure if you were to lose it. It’s important to know the square footage of your structure so you can know what it costs to replace it. 


Finally, there’s the amount of risk you want your insurance company to take. At the core of insurance, it comes down to risk transfer. If you don’t have any insurance, you take all of the risk. When you buy insurance, you transfer that risk to the insurance company. The company will offer you a lower rate if you take more of the risk back. That’s a deductible. So if you’re in a position to take a higher deductible, the company will lower the rate for you. It's a way for you and the company to work together to find a solution that works for all parties. 


In practice, you could raise the deductible on your barn or home. Or you could raise your deductible on your horse’s medical policy. You’re taking more risk at this point, and you should be rewarded with lower costs. 


It’s not super fun to talk about insurance, but it’s something we all live with. And, we might as well get the best policy for us, at the best rate for us. Have this conversation with your agent, or if you don’t have one, just call me. Until next time, remember Will Rogers once said “The best way out of a difficulty is through it.” 


For any questions contact Jonathan Fortenberry at 901-614-1057 (office) | 901- 233-0209 (cell) or email: Jonathan.Fortenberry@American-National.com
 

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