Rising costs hit auto, home insurance markets in Virginia

As Virginians' latest auto and homeowners insurance bills come in, and as they read about billion-dollar losses from hurricanes and wildfires, the consumer helplines at the Bureau of Insurance have been lighting up with questions about what's usually the sleepiest part of insurance markets.

What those calls reflect is what insurance insiders call a "hard market" — rising claims costs and consumer demand for more coverage that push premium rates higher, Virginia Commissioner of Insurance Scott White said.

In an interview he spelled out why prices are rising and discussed a powerful new tool that will give regulators new perspective on what insurance companies are doing — and where.

"You see in the newspaper all the time what's going on in certain markets across the country. Everybody sees the news down in Florida, California wildfire risk and the behavior of certain insurance companies to those exposures," White said.

"And the questions are inevitably: What's going on? … What's going on in Virginia?" he said.

Virginia's insurance market

Generally speaking, the market is in better shape here than in other states, based on the statewide data the bureau sees. This includes how many insurers are writing policies, as well as the detailed forms insurers file about how they set premium rates, and why, for instance, some categories of drivers or homeowners in some neighborhoods pay higher or lower auto or home insurance premiums. It also includes their actuaries' complex calculations of probable frequency and severity of claims, and the amount of premium revenue needed to assure payment.

There are also the national surveys that say Virginia auto insurance is the fourth-most affordable, while homeowners coverage is the 14th-most affordable.

Other key indicators: there are relatively few people in the state's insurance of last resort coverage, the state-administered Virginia Automobile Insurance Plan or the Virginia Property Insurance Association's Virginia FAIR Plan, despite legislation last year that ended the option some drivers have of going without insurance if they pay a fee.

"We didn't see much of an impact from that," White said, referring to the end of Virginia's opt-out for car insurance.

Rising rates

But bureau analysts are picking up signals that legislation from 2021 has translated to an increase of roughly 8% to 10% in premium rates. The legislation gradually increased auto policies' minimum coverage amounts for bodily injury or death from $25,000 to $50,000 for the injury or death of one person and from $50,000 to $100,000 for the injury or death of two or more, with the final step-up taking effect next year.

And they're watching to see if this year's legislation clearing the way for people to sue their insurers, if they believe they've been dealt with in bad faith, will have an effect on rates.

"It's a new exposure for the insurance company. How is that going to impact rates? We have no idea," White said.

"Virginia has not traditionally been one of the states that allow this. Go down to Florida, where you have laws that can incentivize lawsuits against insurance companies and that can really drive up claims activity. In fact, if you ask Florida, they will say the litigation environment there was more damaging than the hurricane risk," he said.

Florida is also on the bureau's mind.

"You might have a company that just decides we don't want to insure any property on the coast, whether that's in Virginia or Florida. We're not seeing that yet, but ... as things progress, it's something we're monitoring," White said. The bureau is also monitoring what's happening with claims from Hurricane Helene's heavy blow in Southwest Virginia.

Another issue is that insurers routinely buy their own insurance — it's called reinsurance — to cover some of the risk they take on. The issue is that reinsurers operate on national — actually global — scales, including places like Florida that are more subject to costly bills from natural catastrophes.

"But if you just even remove, I'll call it the nat cat piece, the natural catastrophe, you have trends … The affordability of insurance in those lines has become more expensive for reasons they don't have to do with hurricane risk on both sides," he said.

"Look at inflation. That's what the big driver is in both of those markets. So, when you're looking at auto, these vehicles are more expensive. They're more expensive to repair. You know, the cost of homes, the cost of labor and building materials, has gone up. That's the real driver. On top of that, with both lines, you have increased severity and increased frequency" of claims, he said.

Presentation to SCC

White plans to detail this Thursday at the bureau's first-ever presentation on the auto and homeowners insurance market to the three judges of the State Corporation Commission. The judges delegate to the bureau the day-in-and-day-out work of reviewing thousands of pages of insurer's forms and rates, resolving complaints, making sure insurers are financially able to pay claims and are treating customers fairly.

He'll also be sharing the bureau's excitement about a powerful new tool: a massive nationwide database of information from 400 insurers, comprising about 70 key data points, that will let his colleagues drill down deeply into what insurers are doing.

"We have access to more granular information now … now with this ZIP code level data collecting this type of information, we're not just going to be looking at the state overall, we're going to be able to see insurance company behavior, let's say, in Chincoteague, in this ZIP code, we might be able to determine, are companies pulling out? Are they shifting more of the cost onto consumers in the form of higher co-pays or deductibles?" he said.

"That gives us information we haven't had before," he said.

But more information — and different ways of working with it — are the biggest trend these days, for insurers and for regulators, he said.

"What companies are finding and telling us is just relying on historical data is not sufficient with where we are now. So, there is extensive use of ... catastrophe modeling, which uses all kinds of different tools to try to build out ... not just historical data but looking at scenarios in the future and doing that kind of analysis," he said.

"What we call big data is kind of a trend in the industry … reams of data that they didn't have before, and they're able to use that because of the cloud computing capabilities and the use of machine learning or AI tools that can really develop these models that they come to us and say, this is predictive of risk, and that's what we have to look at," he said.

"So, it's much more complex, which makes the regulators' job more and more complex in terms of making sure they're using those properly."