Insurance premiums can increase for many reasons. However, in 2024, we see an industrywide premium increase for multiple industries. Even if nothing has changed on your end, many factors have changed in recent years that contributed to your premium increase.
This article goes over several causes of this year's insurance premium increases.
Weather-Related Claim History is a Problem
Over the past decade, extreme weather-related events have increased the frequency and severity of property insurance claims. The rising cost of property also makes it harder to settle. If the insurance company sees numerous claims, especially for high-cost incidents, it will increase your premiums.
Wildfire is a good example. According to the First Street Foundation, over 17,000 structures are destroyed in the US each year due to wildfire. Within 30 years, their models forecast a 100% increase in wildfire-related destruction because of climate change.
What is currently a $14 billion-a-year loss for insurance will soon be a $24 billion-a-year loss. And those losses will impact insurance premiums.
Inflation Directly Affects Insurance Premiums
Recent inflation contributed to rising costs for insurance companies. As the cost of goods and services increases, insurers will raise premiums to cover higher expenses related to claims, repairs, and other aspects of the insurance business. This is the "all boats float at the same rate" scenario.
Between '22 and '23, the Federal Reserve raised interest rates 11 times -- one of US history's fastest interest rate rises. This has changed the base cost of literally everything that insurance companies insure.
The increase in building materials is one of the most visible changes. Residential construction material costs, for instance, generally averaged about .2 percent historically. In 2021, the sharp increase in interest rates and COVID-19's effects on shipping corresponded to a 1.5% increase in materials costs, according to the National Association of Home Builders. While construction increases fell significantly in later years, the base costs remain at historical highs.
Government Regulation Can Impact Premiums
Changes in government regulations or laws can also affect insurance premiums. New requirements or increased compliance costs may lead to adjustments in premium rates.
In 2024, the analysis company Deloitte gave their annual survey of potential regulation. They highlight four areas that could affect rates this year:
The use of AI: The insurance industry believes AI greatly improves its ability to analyze risk; however, Deloitte sees an increase in state regulators attempting to regulate AI's use in the insurance industry. Higher levels of regulation could equate to higher premiums.
Solvency: As the costs of covering claims increase, some insurance companies will either leave areas of the US or go bankrupt. Expect several laws to get on the books in 2024 that will attempt to regulate insurance failures.
Consumer Protection: With increased risks to businesses and consumers, many regulators will create laws to force insurance companies to educate buyers on risk better. Such education will directly affect premium prices.
Underwriting Challenges
Insurance companies regularly reassess their underwriting practices based on their overall risk portfolio. Favorable economic conditions provide rate stability; however, financial and environmental conditions have changed recently. Many carriers are making staged adjustments to make the transition. They would adjust premiums accordingly if they determine that certain risks are not adequately priced.
Contact the Loomis Insurance Company for Help
Understanding how the insurance market changes is hard. If you need to adjust your coverage or need help understanding the insurance rate increases you may face, contact Loomis Insurance Company. We don't represent insurance companies. We represent you.
We will explore options and guide you to get adequate coverage for your organization and the best price possible.
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