P&C rate hikes expected to continue; what’s driving costs up?

High inflation, increased costs for claims, climate change and even the emergence of “fraud rings” are driving shockingly high increases in insurance rates across the United States.

The reasons vary from state to state, and between types of insurance. However, on average, premiums for P&C insurance have jumped 20% or more for most Americans.

That trend is expected to continue at least for the first half of 2024.

“We looked ahead to what insurers are submitting to their Departments of Insurance across the 50 states, and you already have a good number of submissions through May of this year,” Stephen Crewdson, senior director of insurance business intelligence at J.D. Power, noted.

Main factors driving rate hikes

Some of the states seeing the biggest rate increases say they’re experiencing a “perfect storm” of conditions that drive up costs, such as:

1. Inflation costs being passed to consumers
2. More cost and time involved with auto insurance claims
3. Reinsurance costs being passed to consumers
4. Climate change causing increased risk
5. Insurance carriers leaving the state or market
6. More claims and/or litigation from consumers
7. Changes in consumer behavior

The states seeing some of the biggest increases in P&C insurance rates are California, Florida, Illinois, New Jersey, New Mexico, Nevada, Rhode Island and Texas.

Inflationary impacts on insurance rate increases

Todd Rich, chief deputy commissioner, Nevada Division of Insurance, said many consumers don’t realize that as homes, cars and other products cost more, insurance rates are also affected.

“I don't think people always understand that, ‘Hey, it's great my home's worth more.’ Okay, well, it's also going to cost more if there's a peril that impacts it and you have to make a claim,” he said.

“There are the increasing insurance costs associated with inflation, [such as] construction materials, appliances and the difficulty of finding contactors, especially in rural areas,” Melissa Robertson, bureau chief in the New Mexico Office of Superintendent of Insurance, said.

Inflation is a major contributing factor even in Wisconsin, which has some of the lowest rates in P&C insurance.

Tedious, expensive claims process

Higher inflation and supply chain issues have made insurance claims take longer and cost more, similarly driving costs up.

For example, Crewdson explained, auto body shops had to wait longer for parts to arrive and sometimes had challenges with getting supplies at all.

“While waiting for the parts to arrive, it took longer to repair the vehicle and in turn, insurers had to pay longer for rental coverage,” he said.

Nevada, Rhode Island and New Mexico representatives all singled this out as one of the main factors driving up costs in those states.

Increased climate risks

Weather-related risks are driving up home insurance costs in regions experiencing more wildfires, floods, hurricanes and other catastrophic events.

Michael Soller, California Department of Insurance deputy commissioner, said “outdated regulations and higher losses from winter storms and wildfires” are affecting insurance rates in that state.

While declining to comment in depth on what can be a “political topic”, Rich granted that “the economic factors driving these increases are real.”

“We have more floods. We have more fires. We have more damaging windstorms,” he said. “So, those pieces have to be accounted for financially.”

More accidents, litigation, fraud

Changes in consumer behavior are also driving up insurance costs through increased claims as well as greater risk and litigation.

For auto insurance, more drivers are on the road since COVID emergency measures ended, meaning higher risk of accidents.

Making the issue worse in Nevada is the emergence of “cartels in Las Vegas that are creating fraud rings”, allegedly staging accidents, causing more claims and driving up prices for everyone, Rich said.

“Most of the primary cost drivers in the Florida property insurance market…are notably exacerbated by excessive and costly litigation,” Samantha Bequer, communications director in Florida’s Office of Insurance Regulation, said.

Increases could cool down

Despite the year’s start, Crewdson said there are signs economic conditions might be evening out to a point where insurance rate increases will cool off in the later half of 2024.

For instance, used car prices and other claims costs have “come down significantly”. Additionally, “not many” insurers have filed into June and July of this year.

“If you project out further, there are some emerging signs that rate adequacy is starting to be achieved at some insurers,” he noted.

“One would hope that if the inflationary effects continue to cool off, the rate activity that insurers have engaged in and are continuing to engage in should fairly soon lead to rate adequacy more broadly across the industry…maybe in the latter part of 2024.”

J.D. Power is a data analytics and consumer insights firm founded in 1968. It uses big data to understand consumer behavior in the U.S.

Rayne Morgan is a content marketing manager with PolicyAdvisor.com and a freelance journalist and copywriter.

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Rayne Morgan is a journalist, copywriter, and editor with over 10 years' combined experience in digital content and print media. You can reach her at [email protected].