02/15/2024
INSURANCE COSTS: If you have received your home and auto insurance renewal in the mail lately, you probably noticed the cost going up. Here are some facts on why premiums have increased:
1. Several factors are driving up the cost of car insurance, including lingering issues from the pandemic. Vehicles are more expensive and costlier to replace, with inflation driving up the cost of computer components and other parts required for repairs.
A shortage of mechanics around the U.S. also means it's taking longer to fix vehicles — that raises how much insurance companies have to spend covering the cost of rental cars for customers while their cars are in the shop. Climate change is playing a role as well, with more vehicles damaged by extreme weather, leading to more claims and, in turn, higher premiums.
2. Homeowners insurance is becoming more expensive and, in many places, more difficult to find. There’s no sign that the situation is going to get better any time soon.
The culprits: climate change, rising costs to rebuild or make repairs and a sharp increase in the premiums from reinsurance companies that are used by insurers to limit their risks.
Major insurance companies have already virtually pulled out of the Florida market, leaving homeowners paying premiums nearly four times higher than those paid elsewhere in the country. Hurricane risk is part of Florida’s problem – Hurricane Ian last year was the most expensive storm ever to hit the state.
Two of the largest national insurers, State Farm and Allstate, are no longer writing new homeowners policies in California, partly because of the increased risk posed to homes by wildfires.
Climate change isn’t the only factor. Insurance companies also point to the rising cost of replacing homes, as inflation for building supplies and labor has soared. The companies also blame limits placed on insurance premiums in some states, including California.
“The cost to insure new home customers in California is far higher than the price they would pay for policies due to wildfires, higher costs for repairing homes, and higher reinsurance premiums,” said a statement from Allstate explaining its decision to stop writing new policies last fall.
The insurance industry says that rebuilding and replacement costs surged 55% between 2019 and 2022. And reinsurance, the type of insurance that used by insurers to limit their risks, has gone up between 30% and 40% after years of losses in the industry, according to Matthew Carletti, an insurance industry analyst for JMP Securities.The increased frequency of natural disasters is a major factor driving insurers to pull out of some markets and for reinsurers to raise their rates, which affects the premiums everyone pays, according to the experts.
Uninsurable places are growing across all 50 states, experts said, but that’s especially true in California, Florida and Louisiana, which have larger and more frequent disasters like hurricanes and wildfires.
There are different factors at play in all three states, but similar outcomes are happening: More people are being driven to the state-supported insurer of last resort, where they typically have to pay more money for a narrower policy. While Allstate and State Farm have declined to write new policies, smaller insurers in states like Louisiana and Florida have gone bankrupt – driving people out of their insurance altogether.
Talk to your agent about ways to save. One option is increasing your deductible. The days of carrying a $250 or $500 deductible are in the past.
