Insurance Rates are Increasing. Here’s Why.

It’s been a hot topic for some time now, and the dialogue hasn’t changed: The cost of everything is up. While you’ve noticed this for your other monthly household expenses, you may be surprised your insurance rates have increased now, too. This is not unique to your insurance agent or company; all insurance agencies and companies are experiencing rising claims costs due to a number of factors. As one of our valued customers, we want to shed light on what those factors are and, more importantly, empower you to take advantage of all available savings, without sacrificing the protection you need for your most valuable assets.

Economic Inflation

• Labor Shortages
  • We have more job openings than people to fill them, which causes delays with skilled labor and product supplies. March 2024 data from the U.S. Chamber of Commerce shows 8.9 million job openings, but only 6.5 million unemployed U.S. workers.
• Labor Costs
  • With demand exceeding the available supply of workers, wages are likely to continue increasing this year. According to Forbes, 22 states have increased their minimum wage since January 2024.
• Vehicle Repair and Replacement Costs
  • New and used car repair costs rose by 49.8% compared to the relative inflation rate increase of 31.7% from November 2013 to November 2023, according to the Bureau of Labor Statistics.
• Building Materials
  • Building materials continue to rise, according to a recent National Association of Home Builders article. Producer Price Index data published in March 2024 reports that building materials have increased for the fifth straight month. While the index increases are slowing, the index continues to grow at a faster rate than in 2023

Social Inflation

• Increasing Litigation and Larger Compensatory Jury Awards
  • Nuclear verdicts are on the rise and are defined as court settlements exceeding $10 million. Over a 10-year study from 2010-2019 by the U.S. Chamber of Commerce Institute for Legal Reform, nuclear verdict awards grew by 27.5%, with a median payout of $24.6 million in 2019. This far exceeded the inflation rate of 17.2% over the same period.
• Class Action Lawsuits
  • The no-win-no-fee offers of many law firms are making it more attractive for someone to pursue litigation, especially class action lawsuits. This leads to lengthy litigation processes and increasing claims costs for insurers.
• Third-Party Litigation Funding
  • Third-party litigation funding (TPLF) has become a multibillion-dollar global industry and it allows hedge funds and other financiers to invest in lawsuits in exchange for a percentage of court settlements, often 20-40% of the proceeds of the case. In 2022, the U.S. had over $13 billion in assets under the management of TPLF.

Severe Weather

• Climate change is fueling increased frequency and intensity of natural disasters. Aon’s 2024 Climate and Catastrophe Insight report shares that the U.S. had $114 billion in economic losses from natural disasters in 2023.
• There were four U.S. weather-related events that made the global top 10 list for economic losses in 2023. The U.S. drought accounted for $14 billion in economic losses, followed by two severe convective storm events totaling $11.7 billion and the Hawaii wildfires at $5.5 billion.

Risky Driving Behaviors

• Distracted driving behavior is on the rise. According to the National Highway Traffic Safety Administration, 3,308 people were killed and 290,000 people were injured in traffic crashes involving distracted drivers in 2022.
• The 2023 U.S. Auto Insurance Trends Report published by LexisNexis cited that major speeding violations were up 20% in 2022 compared to 2019.

Profitability and Reinsurance Costs

• The U.S. property and casualty (insurance) industry continues to struggle with profitability. According to preliminary results compiled by AM Best, the industry had a $21.2 billion net underwriting loss in 2023.
• Reinsurers (insurance for insurance companies) continue to raise their rates because of rising losses. According to Reuters, at the January 1, 2024, renewal date, U.S. property catastrophe reinsurance rates rose by as much as 50%, as reinsurers looked to recoup losses from 2023 natural disasters.

Now, more than ever, it’s important to have adequate insurance coverage should you experience a loss. Contact us today to make sure you are properly covered, 800-229-5266!

Sources:

https://www.uschamber.com/workforce/america-works-data-center https://www.bls.gov/news.release/pdf/cpi.pdf?utm_source=syndication https://eyeonhousing.org/2024/04/building-material-prices-continue-to-rise-in-march/ https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2024/01/26/how-will- labor-markets-affect-the-us-economy-in-2024/?sh=4a17b0c72fef https://instituteforlegalreform.com/research/nuclear-verdicts-trends-causes-and-solutions/ https://instituteforlegalreform.com/what-you-need-to-know-about-third-party-litigation-funding/ https://www.hdi.global/infocenter/insights/2020/class-actions/ https://www.aon.com/en/insights/reports/climate-and-catastrophe-report https://www.nhtsa.gov/campaign/distracted-driving https://news.ambest.com/newscontent.aspx?refnum=256908&altsrc=23#:~:text=%2F%2FBestWire%2F%2F%20%2D%20The%20U.S.,a%20new%20AM%20Best%20report. https://www.reuters.com/markets/us/us-property-reinsurance-rates-rise-by-up-50-jan-1-broker-says-2024-01-02/