Home and Auto Insurance Rates are Way Up Everywhere. Why? 

What’s behind the increases?

Every insurer has its own set of underwriting guidelines and appetite for insurance in various locations. However, many experts agree that the growing cost of homebuilding supplies and repairs, rise in claims litigation, and escalating frequency of extreme weather events are behind the increase in homeowners’ insurance premiums. Similarly, weather-related claims, high replacement and repair costs, overall rising accident rates, and sky-rocketing medical expenses from accidents are working to boost auto insurance costs.

Explained in a recent article in the Insurance Journal, the surge in premiums started back in 2017, when Hurricane Irma made landfall in Florida. This hurricane caused an estimated $50 billion in combined property and recovery costs and was followed by California’s costliest wildfire season on record at the time, with an estimated $18 billion in damages. Incredibly, wildfire damages of 2018 were estimated at $26 billion, followed by 2020 and 2021, which surpassed that amount by some metrics, including total acres burned.³ While insurers have always understood that Florida and California posed greater risk, the article surmises that insurers were not ready for these unusually high claim years, had underpriced policies, and included contract language such as “unlimited” loss of use, undermining their ability to cover these unexpectedly high costs.

While broader industry and economic trends such as reinsurance rate increases, manual labor shortages, auto part scarcity, and increased legal costs have impacted insurance prices, successful individuals and families often reside in areas with increased climate risk, intensifying the pressure for insurers to increase premiums.

Why some areas are expensive despite lower risk

Not all experts believe that higher risk equates to higher premiums, however. In this New York Times article, research shows that in some places, homeowners are paying more than twice as much for insurance, as a share of home value, than people who live elsewhere (in a neighboring state) but face similar risk exposure.

This research offers several explanations for the discrepancy. For example, higher home insurance rates may be seen in rural states where there are fewer homeowners to share the risk, states in which there is more insurance fraud, and states in which regulators typically accept an insurer’s requests for rate increases. Another factor that can affect premiums is whether a state has a government-mandated, high-risk pool of insurance
for homeowners (i.e., wind or wild fire coverage) who cannot find private coverage. The two-thirds of states that have this pool typically have lower overall rates.