Even before Ian struck as a category 4 hurricane, the insurance market was rife with issues. With carriers pulling out of Florida and costs going up, a challenging market was poised to become even more so. Compound this with new reserve requirements on condos and your budget could need a lot of attention this year. Late last month the reinsurance industry noted that up to $20 billion in new capacity would be needed for January 2023 reinsurance renewals only increasing the complexity.
What is a Reinsurer?
A reinsurer is essentially an insurance company for insurance companies. Insurance companies mitigate risks by purchasing insurance from reinsurers. This allows them to accept more clients or increase capacity by taking on more risk than their balance sheet would allow.
Insurance companies do pay premiums to reinsurers, just like you pay premiums to your personal or association’s insurance company. Reinsurance companies sometimes also buy reinsurance themselves. They are an important piece of the complex insurance infrastructure in the US.
Why Does Capacity Matter and How Can You Prepare?
A mismatch between supply and demand compounded with inflation are just a few key issues contributing to the noted increase. A last-minute renewal deal is anticipated, meaning the market capacity will likely expand, but it may be done at the expense of pricing, terms, and conditions.
“This increased demand at a time when reinsurers have been constraining supply can only push pricing one way – up. It certainly feels as if property reinsurers have the upper hand at the upcoming January 1 renewal, and likely will throughout the course of 2023, potentially longer,” analysts said.
The best way you can prepare for these potential increases is to prepare your budget accordingly. Communicating with your insurance companies, discussing it with your board and association members, and coming up with a budget that can work for both has to be a focus this budget season.
If you need help with your budget, advice, or guidance, Allied is here for you. Our accounting team is ready to help you figure out the intricacies and plan a budget that works for your association.
