Why Are My Insurance Costs Going Up?
Jeffrey Miller LL.M. CLCS
We are seeing insurance costs going up across the board for both personal as well as commercial coverages and I am often asked; “why are my insurance costs going up, I have not had any claims?” That is a great question and I thought I would try to give some explanation for the market we are currently in, which is often referred to as a “Hard Market” in which there are a multitude of contributing factors.
Let’s look at the Personal and Commercial Auto markets first. The primary factors are; rising costs of vehicles, advanced vehicle technology, distracted driving, increased in miles driven and higher medical costs. The advanced technology and increased cost of both new and used vehicles causes a higher replacement as well as repair costs. Distracted driving has led to more severe accidents that have higher medical costs. The pandemic also caused a significant global supply chain issue, which still persist today.
For the Homeowners Insurance as well as the Commercial Insurance markets, we are seeing property rates rise for two primary reasons. First being the rise in the cost of building materials and second, the increase in the cost of labor. The primary building materials have seen an average of 12% increase in costs with the cost of labor is up on average of 8%. These increases impact replacement costs as well as all types of repair costs.
Both Personal and Commercial insurance markets are also feeling the impact of weather and environmental issues. From 2022 weather studies show that for the 8th year in a row the United States has experienced 10 or more billion-dollar disasters; 7.5 million acres burned with over 66,000 fires, which not only cause property losses, but also significate increase in medical and health related issues and costs; 1,331 Tornados were reported, which was significantly higher than the previous 10 years. There were 4,436 hail events with 3 major events with over 1 billion dollars in losses.
Billion-dollar weather/climate disasters have also been growing more frequent in the United States. In the 2000s, the U.S. averaged 6.3 disasters per year. By the 2010s, that average grew to 12.3 per year. In comparison, there were only18 in 2022! These disasters add up to over $165 billion dollars in total costs, making 2022 the third most costly on record.
The concept of insurance is all about sharing the risks with large groups of other people. We essentially share the cost of paying for losses out of large pools of loss reserves created by the premiums we all pay in and hopefully the payout for losses is less than those dollars paid in to keep the loss reserve funds at the appropriate levels needed for future predicted losses. Thus, when there is a significant increase in overall losses as well as the increase in the cost of losses, the loss reserves are depleted or the future predicted losses are appreciably higher, then rates have to go up.
NOAA National Weather Service Storm Prediction Center Annual Severe Weather Report Summary 2022, https://www.spc.noaa.gov/climo/online/monthly/2022_Annual_Summary.hgml
 NOAA National Weather Services Storm Prediction Center Annual Sever Weather Report Summary, https://spc.noaa.gov/climo/online/monthly/2022_