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Why Are Insurance Premiums Increasing in 2024?

U.S. insurance consumers are sinking under the weight of rising policy costs, and there’s no end in sight.

As usual, the data tells the story:

the average cost of auto insurance is up 22.2% according toU.S. Department of Labor Statistics Consumer Price Index This has put insurance customers in transition mode, as more consumers are switching insurers to catch a price break, with 49% of U.S. auto insurance customers saying they are actively shopping for a new plan, according to J.D. Power.

“After the past few years of steady auto insurance premium increases, customers are no longer passively keeping an eye out for a better deal,” said Stephen Crewdson, senior director of insurance business intelligence at J.D. Power. “Instead, they seek new carriers to offset these rising costs. However, with rising premiums nationwide and fewer insurers explicitly offering usage-based insurance—or UBI plans—during the quoting process, insurance shoppers are not finding many alternatives.”

insurance costs rising

Home insurance rates are also in the high-rise category, skyrocketing by 20% by the end of 2023, according to Matic, an insurance services company. With the average cost of home insurance up to $1,700, insurance experts say more homeowners are opting to skip coverage.

Health care insurance and life insurance prices are on the upswing, too, although at a more moderate pace.

What’s behind the rate increases? A toxic blend of economic and severe weather issues top the list.

“The current insurance market for consumers has seen a notable increase in policy premiums across most types of insurance, including home, life, health, and auto insurance,” says Greg Barrett, CEO at WaterStreet Company, a property and casualty insurer in Bigfork, Montana.

The surge in premiums can be attributed to several factors, Barrett said.

·                 The frequency and severity of natural disasters and extreme weather events have risen, leading to higher property and casualty insurance costs.

·                 Healthcare costs and medical care inflation continue to climb, directly impacting health insurance premiums.

·                 The technological advancements in vehicles have also contributed to the escalation of auto insurance premiums as repairs and replacements become more expensive.

·                 Moreover, economic factors like inflation and low interest rates have influenced investment returns for insurers, prompting them to raise premiums to maintain profitability.

Another key factor is simple supply and demand.

“The insurance marketplace is going through what is called a “hard” market,” said Chantal M. Roberts, a risk and insurance professor at Borough of Manhattan Community College and a former insurance adjuster. “This is when supply shrinks and prices go up, and it’s also why insurers are becoming much more picky about who they underwrite.”

A Closer Look at Insurance Channels

What’s up with the major consumer insurance channels (home life, auto, and healthcare), and how do high prices impact customers? Here’s a closer look.

Auto Insurance

The average car insurance policy is now 40% more expensive than in 2021, and 22% more expensive than a year ago, said Guillermo Cornejo, founder at Riders Share, a motorcycle rental services firm in Austin, Tex.

Cornejo said auto premiums are rising for multiple reasons.

Miles driven: “Auto insurance in 2021 was 8% cheaper than in 2019,” Cornejo noted. “This was due to lower miles driven per customer. And lower miles driven means fewer accidents.”

As the economy returned to normal, people drove more miles per vehicle. “Vehicle miles traveled per the St. Louis Fed is about 18% higher than during the pandemic,” he noted. “That’s a record high, similar to pre-pandemic levels. Higher miles driven per vehicle result in higher accident rates per insurance policy, which drives up costs.”

Car prices: The average new car is 12% more expensive than in 2021. “That explains part of the reason for insurance increases, but not all of it,” Cornejo added. “Labor car repair costs and insurance claim adjuster costs are now also 13% more expensive than in 2021.”

Theft. After years of decline, the theft rate has increased. “You’re seeing TikTok teaching the world how to steal a Kia,” Cornejo said. “According to Axios, the rate is roughly 50% higher than in 2021, which, combined with vehicle prices, hurts insurance companies badly.”

Home Insurance

Home insurance premiums are on an upward trajectory, with the average cost reaching $1,678 per year for a policy with $350,000 of dwelling coverage in 2024. “Some states like Florida and Louisiana have experienced premium hikes of over 60% due to their exposure to natural disasters,” said Sebastian Hov

CEO at 18 Insurance in Sacramento, Cal.

That’s a big problem as soaring home insurance prices are moving financially struggling homeowners to the precipice.

The marketplace will continue to see higher prices, thus making it more difficult to obtain insurance for homeowners, Roberts said. “This scenario will cause many people to go without insurance.”

High home insurance prices have already forced consumers to the secondary or non-admitted market (meaning they may go to an insurer with even higher premiums and less coverage). Additionally, home insurance consumers will undertake more risk management techniques (such as higher deductibles) to lower their premiums,” Roberts noted.

Another big issue driving home insurance costs skyward is state insurance rate mandates. Since U.S. states regulate insurers, decisions made at the state level have driven up policy costs, mostly due to mandated rate increases that reflect rising insurance company costs.

For example, the North Carolina Rate Bureau recently called for a 42.2% rise in homeowner’s insurance that will go into effect on August 1 if state regulators approve it. California is in a similar bind, with homeowner’s insurance rates expected to rise by 20% in 2024.

“These rate changes are driven by increased costs and risk and are necessary for State Farm Mutual Automobile Insurance Company and State Farm General Insurance Company to deliver on the promises the companies make,” State Farm noted in a recent statement.

Life Insurance

As an industry, life insurance experienced modest growth in 2023 with a 4% increase in new annualized premiums and looks to remain stable for the rest of this year.

“While not as prominent as other sectors, life insurance premiums have likely increased due to higher mortality rates and aging insured populations,” said Michael Ryan, a personal finance specialist and founder at the money management platform

The life insurance market also sees a longer-term trend of declining sales volume, but new policy sales increased in 2023.

“The impact of inflation on discretionary consumer spending is likely pressuring individual life insurance sales,” said Jon Morgan, CEO and editor-in-chief of Venture Smarter, a business consulting firm in Chicago, Il. “However, the pandemic has also heightened awareness of mortality risk, leading to increased demand for life insurance.”

Rising inflation and lower wages – a syndrome economists call “stagnation – also impact the life insurance sector, causing insurers to raise prices while customers find it more difficult to cover their monthly life insurance bills. That scenario is currently happening all over the world in mid-2024.

“The impact of inflation on discretionary consumer spending will likely pressure individual life insurance sales in the United States and Europe, while regulatory headwinds may weigh on advanced Asia,” Deloitte noted in a recent research report on global consumer insurance trends.

Health Insurance

Health insurance costs for employer-sponsored plans are projected to jump by 8-9% in 2024, with employees likely facing higher premiums and out-of-pocket expenses. “Factors such as increased utilization and specialty drug costs are contributing to these increases,” Morgan said.

Economic woes also contribute to higher healthcare insurance costs, as higher inflationary spirals and rising healthcare costs, in general, push policy prices up. According to a recent study by ValuePenguin, U.S. households will spend a record $584 per month, or $7,008 per year, on health insurance for private health insurance coverage.

“Those costs are driven by rising costs for healthcare providers and insurers,” ValuePenguin concluded. “Residents of 35 states will likely see their rates increase, but there may be some relief for residents of the 15 states where premiums are set to decrease or stay the same.” Every type of private health plan included in the Affordable Care Act’s (ACA Marketplace) policy lineup will see premiums increase in 2024, the report noted. “Platinum & Gold tier plans, along with HMO & PPO plans, will see the largest increase in premiums ranging from 6% to 10%,” the report noted.  

Consumer Insurance “Coping” Tips For the Rest of 2024

As an insurance industry policyholder, consumers aren’t powerless to improve the cost ending of their insurance experience.

Take these tips to the table when examining your consumer insurance experiences going forward.

Be a smart consumer. Shop around, increase your deductibles to lower premiums, and bundle policies for multi-policy discounts, Ryan advises.

Explore usage-based insurance (UBI). Many auto insurance companies now offer usage-based insurance (UBI) programs, which calculate premiums based on your actual driving behavior. “By enrolling in a UBI program and demonstrating safe driving habits, you may be eligible for significant discounts on your auto insurance premiums,” Ryan said.

Leverage telematics for home insurance. Similar to UBI for auto insurance, some home insurance providers offer discounts for policyholders who install telematics devices in their homes. “These devices monitor factors like temperature, moisture levels, and potential hazards, allowing insurers to assess risk better and potentially offer lower premiums for proactive homeowners,” Ryan noted.

Participate in wellness programs. Several health insurance providers offer incentives and discounts for policyholders participating in wellness programs or meeting specific health goals. These programs often involve tracking physical activity, maintaining a healthy diet, or participating in preventive care initiatives.

Improve your credit score. Your credit score can have a big impact on your insurance premiums. Insurers use credit information to price auto insurance policies in many states. “Paying your bills on time, reducing your debt, and regularly checking your credit report for errors can help improve your credit score,” Morgan advised.

Do it yourself. Take advantage of risk management tools that can lower your premium, such as a burglar alarm to reduce theft risks. “Also, clear away brush or dried trees, bushes, and leaves which create a fire hazard,” Roberts advised. “Keep up with home repairs, too.

The Takeaway on Rising Insurance Prices in 2024

Policyholders can’t alleviate some of the underlying reasons for skyrocketing consumer insurance costs. There are other areas, however where consumers have more control than they think.

In that regard, controlling the issues you can control should be the path forward for insurance customers looking for pricing relief.

“While some insurance cost-cutting strategies may not be suitable for everyone, they highlight the importance of thinking outside the box and exploring unconventional approaches to managing insurance costs,” Ryan said. “As the market continues to evolve, staying informed, proactive, and open to innovative solutions can help policyholders navigate the challenges of rising premiums more effectively.”

After all, with higher consumer insurance prices expected throughout 2024, being a savvy consumer and taking action to cut costs isn’t a luxury.

It’s a necessity.

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