The insurance industry is facing a hard truth – the market is hardening and it’s not stopping any time soon.

The potential impact is widespread, and we are already seeing it unfold before our eyes.

OSC’s Don Curtis, SVP of Business Development, has over 4 decades of experience in the mortgage banking, consumer finance, and real estate industry in sales and management. He shared his expertise as an industry veteran on the state of the market and how OSC can help through the ups and downs of the hardening market landscape.

What is a hardening market?

A hardening market means you have less resources from which you can get your services.

“You have less to choose from,” Don said. “The markets experiencing that the most right now are in high catastrophic areas such as Florida and California, the two coasts.”

A Coastal Conundrum

Widespread fires across California cause significant losses for insurers and homeowners. In Florida, annual hurricanes and tropical storms leave devastating flood and wind damage.

“The climate change that everyone hears about is out there,” Don said. “You can just about count on every year on the East Coast, you are going to have hurricanes. Summertime on the West Coast when it’s dry because of arid conditions and lack of rain, there’s going to be fires.”

Catastrophic events lead to insurance claims. Increased claims lead to insurers needing to raise rates or go out of business. In California, insurers and associations are limited by law (via Proposition 103, approved by California voters in 1988) that prevents them from considering current or future risk management when deciding costs for insurance policies. They must instead rely solely on historical data, which in a time of change leads to unpredictable costs to the insurers. A plan has been proposed which would allow insurers to use catastrophe models when determining rates.

The result – companies like State Farm and Farmers Insurance left that market. Tokio Marine America and Trans Pacific are two recent additional exits from the state’s market.

“They are moving out of the market because they can’t afford any more significant losses in claims without raising their rates,” Don said. “The insurance commissioner is looking at speeding up the process and allowing them to change their rates for cost status right now, but the damage has already been done with insurers pulling out.”

Florida’s catastrophic events are leading them to a similar market outcome.

“You have all these major insurers that have all these losses with big hurricanes that came in,” Don added, “and they have decided that they have to pull out or are going to have to raise more rates.”

The Trickle-Down Effect

Multiple parties will continue to feel the effects of a hardening insurance market.

“It’s going to continue to occur until homeowners are required to either pay more and/or to do more proactive defensive measures to protect properties – like clearing brush or doing better flood water drainage. There’s going to be a lot more involvement.”

Buying a house becomes more complicated.

“When you have fewer insurance opportunities and fewer insurers to go to – and you are going to be paying more – that impacts either the closing of the loan at escrow or it could impact you wanting to refinance your house,” Don added.

On the investor side, cost models must be reconsidered and revamped. With rising costs of construction materials and increased taxes, insurance becomes a big factor in fix and flip projects.

“Can you get insurance? How much is it going to cost you? What does that do to your bottom line?” Don asked. “So, there are a lot of trickle-down effects with this. It is not going to go away here for a while until something changes where you have more companies wanting to come back into the market.”

The California FAIR Plan

When fires create insurance havoc, the California FAIR Plan provides basic fire insurance coverage for high-risk properties when insurance can’t be obtained through traditional carriers. It was initially used as a backstop to other insurers. This plan requires that homeowners must purchase coverage from the FAIR plan if they live in areas threatened by wildfires and have had their policies non-renewed. Insurers only pay into this fund to prevent insolvency.

“You have insurance companies that pay into this plan that picks up the subsidies of insurance programs out there,” Don said, “but with less insurance companies, the California FAIR Plan applications have increased significantly.”

Some project billions of dollars in losses. This all significantly impacts mortgage companies that are dependent on loans closing and homes being built.

OSC Can Help

This is where OSC comes in.

“On a positive side, OSC is very well positioned to provide insurance and tracking products to help companies,” Don said. “We are in the markets. As a managing general underwriter, we can open other markets – not just one market is available to us. We have other markets we can go to.”

Companies who have been dropped by their insurance carrier are already reaching out to OSC to help.

As the real estate and mortgage market slows because of interest rates and other factors, companies may face layoffs, mergers, and acquisitions.

“Some of the companies might be doing more with less people,” Don added, “and that’s how our solutions with our technology and tracking can come into play. OSC is well positioned to help out.”

Another way OSC is impacting the current market is through the mortgage industry’s first Total Flood™ solution, designed for the needs of banks, credit unions and mortgage services. Through a partnership with Newmark and CoreLogic, lenders and servicers in financial institutions can stay compliant under the Flood Disaster Protection Act.

“With the three companies and our combined services, we can help give them the data they need, audits, and insurance and tracking,” Don said. “We are doing a lot to make sure that we have a strong market. We’ve got a lot of different programs in place and a full tracking solution to help.”

Some Expert Advice – Annual Checkups

To help while navigating the hardening market and any future shifts, Don wanted to share a piece of advice to companies to help achieve financial stability.

“I would encourage everyone to do an annual tune-up on all of products with your vendors,” Don said. “How do you know you have the best solution in place for you, your company, and your customers? How do you know you have the best technology and the most compliant company? Nobody has the perfect solution, but you need to find what is best for you and your company in that time and space.”

He said annual checkups can save companies a lot of money and possibly even open their eyes to missing components or areas in which they are underinsured.

“Do a review to make sure you are well positioned to avoid audits, manage your risk, and have the best vendor partner in place at the time.”