Updated from Dec. 2023
If you’ve seen an increase in your insurance rates recently, you may be wondering why. Personal factors such as driving history and where you live will always play a role in determining your insurance premiums; however, there are external factors that can cause your rates to increase as well.
Four of the biggest culprits behind today’s rising insurance costs include the lingering effects of inflation, an overall uptick in the number of claims being filed, increased extreme weather events, and something you need to know about called “social inflation”.
The Reality of Rising Insurance Rates
You open your renewal notice and look for the amount due, hoping that it will be the same as this year’s premium (or at least be very close). But the figure you see is higher than what you’re currently paying. What’s going on?
The fact is, like the cost of many services and goods, insurance rates have gone up every year for the last three years. This is incredibly frustrating, especially if you have not turned in a claim or had a driving violation that would cause your rate to increase, yet again.
Inflation and Higher Costs
Think about the last home improvement project you completed: For example, if you remodeled your kitchen in 2025, it likely cost you twice the amount it would have in 2021. Likewise, inflation has had a direct impact on the amount that is paid on every insurance claim.
Because things like lumber, car parts, and labor cost more now than they did five years ago, claims payouts are commensurately higher. And while reputable insurers will try everything in their power to keep insurance rates as low as they can, these higher payouts inevitably translate to premium hikes.
More Claims and Bigger Payouts
Another contributing factor to rising insurance costs is the sheer number of claims being filed today. Traffic accidents caused by distracted drivers have increased dramatically in recent years. This has led not only to more claims being filed, but also to increased payout amounts. Even small fender benders cost more because of the complicated technology that is in the bumpers of most vehicles on the road. Things like sensors and cameras make even small claims cost more.
Weather and Catastrophic Events
It seems that nearly every day, we wake up to news of another extreme weather event. Frequent wildfires, stronger hurricanes, and catastrophic floods have become the norm. Shifting weather patterns mean that, no matter where you live, your odds of experiencing property damage due to a storm, flood, or fire is much higher than twenty years ago.
Insurance companies now have to factor extreme weather into their rates. If they didn’t, a single large weather event could be enough to bankrupt the insurance company and leave people who had paid for insurance without any, just when they need it most.
Legal and Regulatory Costs
We all know about “inflation” these days, but beyond economic inflation, there is a phenomenon called “social inflation” that is also causing rising insurance costs.
Social inflation refers to the significant increase in corporate litigation and very large insurance claims payouts awarded by juries in recent years. Even though these one-time verdicts may seemingly have nothing to do with you, the hefty cost of these claims is increasing the amount of insurance we all pay as insurance carriers forecast the possibility of these types of payouts in the future.
What You Can Do to Manage Your Rates
Most of the factors discussed here are happening at a national and global scale and feel out of our control as individual policy holders. Fortunately, there are still a few things you can do to manage your insurance rates:
- Start by hiring an independent insurance agent who will provide a thorough review of your individual insurance needs and assist you in making sure those needs are met for the best value.
- Consider increasing your deductibles to help lower your insurance premiums. When you take on more of the risk, the insurance company charges you less. (A note of caution: Understand that any claim you file that costs less than the deductible amount is your responsibility to pay for out of pocket.)
- Maintain your property. Replace your aging roof with quality materials and take care of routine maintenance like minor leaks so small issues don’t turn into an insurance claim that will lead to a premium hike.
- Don’t file small insurance claims, as even small claims will lead to higher rates.
- Be a safe and responsible driver by not driving distracted and obeying the traffic laws. Many insurance companies even offer rewards or discount programs for safe driving records.
When it comes to navigating the complexities of insurance, you need more than just coverage. If you are looking for a trusted advisor who will custom design an insurance program that is tailored to meet your specific needs, contact us today.
FAQs About Rising Insurance Rates
Why do insurance rates go up even when I don’t file claims?
It is very frustrating, but insurance companies base rates on a number of factors including economic inflation, extreme weather, and socially inflated insurance claims. They use complicated modeling to analyze the likelihood of claims payouts and adjust the rates accordingly.
Are some types of insurance increasing faster than others?
Yes, home insurance rates in North Carolina have increased faster than other types of insurance. Factors like extreme weather events and inflation have had a large impact on insurance rates.
How often do insurers file for rate increases?
Insurance is state-specific and every state has different rules and requirements for rate adjustments. Generically speaking, insurance carriers file for them when they feel it is needed. If insurance carriers don’t feel the rate is adequate for the risk probability in a geographic area, the carrier will no longer want to do business in those states. For instance, states at high risk for extreme weather like Florida and California do not have many insurance carriers willing to sell policies, making it difficult for consumers.
Can I do anything to prevent my premium from rising?
Yes! Increase your deductibles, maintain your property, and drive responsibly. Also, find an independent insurance agent who can help you find the best value for your insurance needs.
