The Hidden Cost of Insurance: Reinsurance Is Elevating Coverage Rates for Americans Everywhere | Insurify
A hidden insurance market is costing American homeowners and drivers dearly.
It's called reinsurance, and insurance companies buy this coverage to help them cover losses following catastrophic events. Yet many consumers haven't heard of reinsurance — even if they're indirectly paying for it.
Insurance for insurers
Climate catastrophes, rising labor and repair costs, the increased frequency of severe car accidents, and heightened state insurance regulations have all contributed to record losses for property and casualty insurers, according to Insurify's home and car insurance reports.
And as losses have mounted, insurers have increasingly turned to reinsurance to help cover the risk.
"Reinsurance capacity has become constrained, and the cost of reinsurance has increased," said
Reinsurance allows an insurer to transfer some or all of its policies to a reinsurance company — along with the risk of paying any claims against those policies. Sharing risk with a reinsurer helps traditional insurers comply with laws requiring them to have enough free capital on hand to cover all potential claims for the policies they write.
Additional protection in a market of rising costs
Like traditional insurers, reinsurance companies set rates based on risk, and costs stemming from increased losses pass through insurers to consumers as higher premiums.
After a 20% increase in the last two years, home insurance rates have risen 6% in 2024, according to Insurify data. Car insurance rates are soaring, too. Following a 23% increase last year, car insurance costs increased 7% in 2024. Part of these rising costs stems from reinsurers increasing their rates to better manage risk.
"Much like insurance carriers, reinsurers are faced with economic pressures, more frequent severe weather threats, and changes in risk, like changing driving behaviors," said Stella. "Reinsurers must charge higher premiums to insurers to be profitable themselves."
Insurers often seek reinsurance to expand the company's policy capacity, provide catastrophe protection, spread risk, and acquire expertise, among other things, according to the
How reinsurance is dictating the insurance market
The
Experts point to increasingly frequent severe weather as having the sharpest effect on reinsurance rates. A national risk assessment from the
But these market challenges are not exclusive to
Reinsurance rates are increasing for insurers across the nation, especially those selling policies in areas vulnerable to severe weather like hurricanes, wildfires, and hailstorms.
In January, broker Gallagher Re reported
"After two years of significant rate increases, the property catastrophe reinsurance market is experiencing a moderation in pricing this year,"
"As a result, risk-adjusted rates have seen reductions in the higher layers," Friedlander said. "This has led to minimal rate increases for property/casualty insurers in
Inflation also affects reinsurance rates. Rising home construction and auto repair costs mean more expensive claims, exposing insurers and reinsurance companies to increased risk, according to
What's next? The reinsurance market is tempering, for now
While market volatility appears to be lessening, experts caution rates could fluctuate again.
"As economic pressures wane, the market will stabilize," said Stella. "Product innovation will also likely contribute to better market conditions. However, as long as new and unpredictable weather patterns continue to plague the industry, some instability will persist."
A more stable market could be good news for policyholders in the highest-risk areas, like the
And as consumers and insurers reduce their risk, the hope is the risk to reinsurers may subside as well.
"Insurance buyers mainly focus on the direct insurers — the primary, excess, and umbrella carriers that provide the coverage," attorney
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