Rising Insurance Rates for Car and Home in U.S.: What’s Behind the Surge?

Ezra Croft has never made an insurance claim, yet his Raleigh, North Carolina home isn’t near a stormy coastline or a fire-prone forest.

Croft was astonished when his annual homeowner’s insurance rate increased to $1,600, $700 more than he was paying just a few years before.

“I’m a middle-income guy,” Croft explains. “Don’t earn a lot of extra money. At this time, I’m almost out of money.”

Similar complaints can be heard throughout the country. According to S&P Global Market Intelligence, insurance firms increased homeowners’ premiums by almost 11% on average last year.

Auto insurance costs are rapidly increasing, exceeding inflation.

Take Paul Morro. His annual auto insurance bill has suddenly increased by $600.

“Here’s the kicker,” Morro says. “My wife and I both work from home. So we have no commute to speak of.”

He’s bracing himself for the bill to insure his house, in Herndon, Va.

“It just feels like everything is rising at a scary rate,” Morro says.

Why insurance costs are surging

Insurance firms claim they are simply playing catch-up after two years of significant losses. According to the Insurance Information Institute, for every dollar of home and car premiums received last year, insurance companies paid an average of $1.10 in claims and expenses.

“Nobody wants to have that higher-priced bill,” says the institute’s CEO, Sean Kevelighan. However, he stated that corporations “need to price insurance according to the risk level that’s out there.”

Inflation is partially to blame for the large rewards. The cost of repairing or replacing damaged homes and autos has risen dramatically in recent years due to growing labor and material costs.

Even as prices begin to level out, insurers are dealing with an increasing number of natural disasters, and not only in the traditional regions such as Florida and California.

Ezra Croft from North Carolina saw his annual homeowners’ insurance surge to $1,600, a $700 increase. Many others across the country are also seeing surging auto and home insurance premiums. (Courtesy of Ezra Croft)

Last year, the United States experienced over two dozen severe storms that caused billions of dollars in damage, including lightning, hail, and damaging winds.

“While many of these storms do not make national headlines, they can be extremely costly at the local level,” says Tim Zawacki, lead research analyst for insurance at S&P Global Market Intelligence. “And the breadth of where these storms are occurring is something that I think the industry is quite concerned about.”

if a result, insurance premiums are anticipated to rise this year, even if general inflation slows.

Insurers have a lot of pricing power

While state authorities have some power to curb price increases, insurance companies typically get their way. Regulators understand that if they move too forcefully to control premiums, insurance companies may quit offering coverage entirely.

“The insurance companies have become really aggressive in their bullying,” says Doug Heller, director of insurance at the Consumer Federation of America. “You’ve heard a lot about corporations threatening to exit the market if they don’t get their way. Generally speaking, bullying has worked.”

Douglas Heller, director Of insurance at the Consumer Federation of America, speaks during a Senate Banking Committee hearing about the property insurance market on Capitol Hill in Washington, D.C., on Sept. 7, 2023. (Anna Moneymaker/Getty Images)

Last week, the Treasury Department held a roundtable with consumer and environmental groups to address how climate change is affecting insurance markets. The agency also intends to organize a meeting on the subject with insurance industry stakeholders.

Customers can occasionally save money by browsing around. Alicia Pitorri switched insurance companies after the cost of her family’s motor policy increased by more than $1,000.

“It was Liberty Mutual,” she says, laughing ruefully. “We’ve since switched to State Farm since the renewal went up so much.”

Pitorri, who lives in Nashville, says that while she was able to trim a few hundred dollars off her bill, she is still paying significantly more than she was two years ago.

“What can you do?” she inquired. “You need insurance. You cannot have a car or a house without them. So you’ll have to pay for it. And you find out where you can cut other things so you can get about.”

Going without insurance

Auto insurance is needed in almost every state. Lenders generally demand that homeowners with mortgages have insurance as well. Nevertheless, as premiums rise, more consumers are reducing or eliminating their coverage.

Ezra Croft pondered canceling his home insurance, but finally chose to pay the increased premiums.

“I’m fairly good at home repairs, but if something like a tree fell on my house or a tornado or a fire, I don’t know what I would do,” Croft said.

According to a survey conducted by the Insurance Information Institute last year, 12% of homeowners had no insurance, up from 5% four years ago. However, going without coverage poses a risk to both individuals and society as a whole.

“Insurance is an important product, not only for economic stability but for community resilience,” Heller said. “We are very concerned that these escalating premiums are going to lead to escalating rates of uninsured drivers and homeowners, which makes us all quite vulnerable.”

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