If you have sticker shock from rising insurance premiums, you’re not alone. Rates are quickly increasing due to various factors, including inflation, uncertainty in the global economy, increases in material and labor prices, and reinsurance costs, all of which have accelerated drastically over the past two years.
The cost of an average homeowners insurance policy nationwide rose 17-20% last year, and premiums are expected to continue climbing. Colorado has been hit even harder, with frequent hail and wildfire events causing insurance carriers to pull back from the state.
Placing homeowners insurance in the Colorado foothills is a challenge. Many carriers have all but stopped writing new policies between the Front Range and the Continental Divide due to the dry climate, high temperatures, and unmanaged vegetation in the surrounding communities with multi-million-dollar properties.
Colorado isn’t the only state that’s under the microscope. Many carriers are tightening underwriting guidelines in Florida, requiring higher hurricane deductibles (sometimes upwards of 10% of the home’s value), or simply declining to offer hurricane coverage in specific areas. California’s brushfire and wildfire risks are a major concern for carriers, with many affluent carriers ceasing to write in the state altogether.
Some carriers are even canceling coverage for families in these communities, leaving them with few options for replacement coverage. Many homeowners shopping their insurance due to premium increases are disappointed to find higher rates and limited options across the industry.
Carriers nationwide are struggling to remain profitable in today’s volatile environment. State Farm reported a $13.2 billion underwriting loss in 2022, attributed to inflation, increased claims severity, and an uptick in prior year claims. This represents State Farm’s largest underwriting loss in the company’s 100-year history, underscoring the significance of shifts in the market.
Experts are predicting reinsurance prices to rise 30.1% in 2023, compared to 14.8% in 2022. Increasing catastrophic events countrywide — from hail and wildfire in the west, to ice storms in Texas, and seven Category 3+ Hurricanes making US landfall since 2017 — translates to higher reinsurance costs. Rising interest rates also have a significant impact on the cost of reinsurance, where reinsurance investors expect return yields above investment classes with lower risk, like Treasury Notes and Bonds. It’s important to remember that these higher reinsurance costs are ultimately passed down to the consumer, which is why planning and preparation are key.
Consumers should expect a 10-25% premium increase for homeowners policies and a 10-15% increase for auto policies. Homes in higher-risk areas can even see increases up to 50% or more, and we anticipate further rate increases into 2024 and beyond. So, how can you balance your costs with adequate coverage amid all this uncertainty? One of the best strategies is leveraging the expertise of your insurance advisor.
Consider scheduling a meeting with your independent insurance advisor to map out the best course of action to navigate the current insurance market. A comprehensive insurance review can address the cost and placement challenges consumers are experiencing today, ensure you have appropriate coverage, and help structure a long-term insurance plan.
Here are some recommendations families can immediately consider while reviewing their insurance program:
There’s no time like the present, and our team is here to help – get in touch with Andy Orlando to navigate the intricacies of the insurance market. The CCIG team is here to answer your questions and offer a strategic roadmap for your insurance needs.Back to Resources