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Forecast for the Self-Storage Insurance Market: Cloudy With a Chance for Rain

Forecast for the Self-Storage Insurance Market: Cloudy With a Chance for Rain
Property owners have been hit with a higher frequency of natural disasters and other catastrophes over the last two years. These events have sent insurance carriers reeling. Here’s what a rush of claims and payouts may mean for your self-storage insurance premiums.

Many of us have been hoping for a reprieve from the chaotic events of 2020, yet the dark clouds that have swirled above this year have yet to reveal much silver lining. Numerous catastrophic events combined with geographic and social factors have negatively impacted property owners, including those in self-storage. They’ve certainly affected insurance rates.

Here are just a few of the circumstances currently disturbing the market:

  • Hurricanes are regularly beginning earlier in the year. In fact, 2021 was the seventh consecutive year in which the season started before June 1. Multiple storms pummeled the Gulf Coast this year and wreaked havoc all the way to New England.
  • Drought has spread from California into Oregon, Idaho and Montana, creating disastrous conditions and devasting wildfires. Lakes and reservoirs are at record-low levels.
  • Crime and violence continue to plague our cities, leading to an exodus of individuals and businesses.
  • Despite successful, fast-track advances in highly effective vaccines, the coronavirus pandemic continues to instill fear and upheave daily life. Restaurants, nightclubs, gyms, hotels, airlines, schools and public venues continue to grapple with ever-changing rules and regulations imposed by local, state and federal authorities.
  • Supply-chain disruptions impact almost every facet of day-to-day life, leading to shortages in food, fuel and commodities not experienced since the 1970s.

The good news for self-storage owners is our industry was designed for times like these. We’re positioned to help families and businesses by providing immediate and affordable shelter, security and peace of mind to those seeking a safe haven for their valuables—in some cases, everything they own. Facility operators also stand to benefit from other related factors, including large population shifts, in which some states have seen swells in mobility, and the remote-working trend, in which scores of people have needed to create home-office space.

A ‘Hard Market’

Though the self-storage industry remains strong and there are many conditions that contribute to increased demand for our services, the upsurge in natural disasters has been especially difficult for facilities in several parts of the nation. Predictions for the coming year appear equally daunting.

Those same factors that are causing disruption for self-storage owners are sending many insurance carriers reeling as they face large and unforeseen losses. Many have had no choice but to increase rates. Much in the same way that self-storage operators calculate how many units must be rented each month to break even or turn a profit, insurance providers must crunch their numbers. They look at historical data and current trends to project the number of claims that may be made compared to the number of policies written, and how much these claims will cost (in dollars) compared to the premiums collected.

When these probabilities become too difficult to predict, insurance carriers can elect to limit coverage or cease providing it altogether for specific types of liability. They can also choose to offer such coverages with an increased premium to offset risk. This is what the insurance industry calls a “hard market.”

The Fallout

Over the last few years, natural disasters have been more severe and occurred at alarming rates. The sequence of weather-related events has caused many insurance companies to pay billions of dollars in claims. In fact, these payouts have been much higher than providers anticipated. Though carriers have used historical data to create probabilities in hurricane-prone areas, the unpredictability and devastation of these disasters has become increasingly problematic.

The hard truth is dramatic changes in weather patterns have made underwriting decisions to insure certain properties extremely difficult and very expensive for all parties. Insurers understand that premium increases are frustrating for customers. At the same time, they simply can’t sustain their businesses while losing money year after year after year.

In general, insurance providers are relentlessly loyal to their customers. They’ll work hard to review your policies and seek cost savings wherever possible. Realistically, though, accounts that have experienced heavy losses can expect changes in rates and possibly to their deductible or coverage, with some carriers implementing increases of 40% or more during this difficult time.

As 2022 unfolds, don’t anticipate an ease of rate pressure from insurance carriers. The self-storage properties that’ll likely feel the heaviest impact are those in the most difficult geographic territories as well as those that are older, comprised of converted buildings or developed with wood-frame construction. Providers will also review the history of each location for claims frequency and severity.

Jenny Bortman is vice president at Universal Insurance Programs, which has created and provided specialized insurance coverages to the self-storage industry for more than 20 years. For more information, call 602.222.8300.

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