Why Home and Auto Insurance Rates Are Rising and What You Can Do About It

December 7, 2023

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Climate change is bringing more to the United States than turbulent storms and record-breaking temperatures. The striking shifts in our weather are also having a dramatic impact on personal lines of property and casualty (P&C) insurance such as Home and Auto — especially for certain states. 

In California, for instance, the increasing frequency of forest fires, earthquakes, and other extreme weather has led some carriers to stop writing business, while others have dropped out of the state altogether. We’re seeing similar trends in Texas and Florida, which have also been hit hard by climate change.  

Indeed, at least five large U.S. property insurers — including Allstate, American Family, Nationwide, Erie Insurance Group and Berkshire Hathaway — have told regulators that the effects of climate change “have led them to stop writing coverages in some regions, exclude protections from various weather events and raise monthly premiums and deductibles,” according to the Washington Post

Other events in the news, such as the still-reverberating impact of COVID-19 and the ensuing fluctuations in transportation trends, are also impacting personal lines of insurance. It’s become clear that personal lines are extremely vulnerable to external incidents, trends and market forces. In a world that’s changing so dramatically every day, that could lead to an even more volatile market. 

The effects are sadly predictable. In many places, prices are much higher — rates for personal lines of insurance increased by 12.8% in 2022, according to Alera Group’s 2023 Property and Casualty Market Outlook, and rates continued to climb in the first half of this year — and it can be difficult for some to even find a carrier who will insure their home. 

Wide-Ranging Impacts of Climate Change 

When we look at the larger trends within personal lines, it’s apparent that the effects of climate change have the greatest impact. As Alera Group reported when we released the Market Outlook last winter, climate change is affecting Auto Insurance rates, Homeowners premiums and availability, and even degrees of underwriting scrutiny.  

Our Property and Casualty Market Update, released earlier this month, reports the following on personal insurance coverages: 

  • Auto Insurance rates continue to rise due to underwriting losses. Distracted and other forms of risky driving behavior, increased repair and vehicle replacement costs, an aging driver population, weather-related losses and claims severity are contributing to poor results.  
  • Insurers are seeking rate adequacy but are experiencing pushback from regulators in some states. Average Auto Insurance rate increases are in the 10% to 20% range. In the first six months of the year, average rates rose as high as 31% in Michigan and 36% in Nevada.  
  • Homeowners rates are also increasing. The percentage of increase depends on the state and proximity to catastrophe-prone areas.  
  • Factors driving rates are reinsurance costs, a 55% surge in rebuilding costs from 2019 to 2022, and the increased frequency of natural disasters and severe weather.  
  • Insurers are becoming more aggressive in reinspecting homes at renewal and reevaluating home values to ensure they reflect the actual costs to repair or replace the home in the event of a loss.  
  • Heavy losses in states such as Florida and California are leading some carriers to pull out of unprofitable personal lines and invest their resources in commercial lines.  
  • Homeowners in coastal communities can expect to see rate increases up to 40%-50%, more restrictive policy terms, higher deductibles and limited availability.  
  • Market availability for high-value Homeowners Insurance continues to shrink.  
  • Carriers are lowering the limits of Umbrella/Excess Liability coverage they’re willing to offer, due to the increasing number of lawsuits and severity of losses.  

The Effects of COVID-19  

In addition to climate change, personal lines are still being buffeted by the reverberations of the COVID-19 pandemic. For instance, people may be returning to work, but they’re still hesitant to take public transportation. This has led to more cars on the roadways, which has led to more accidents.  

Nearly 43,000 people died on U.S. roadways in in 2022, an increase of more than 6,000 deaths compared to 2019, according to the National Highway Traffic Safety Administration. NPR alluded to those statistics in its recent report “4 reasons why your car insurance premium is soaring.” The four reasons cited by NPR: 

  1. Drivers have gotten a lot riskier during the pandemic. 
  2. Repairs and parts replacements are proving costly. 
  3. Natural disasters are also driving up insurance costs. 
  4. Insurance regulators have to strike a balance. 

One of the effects of all this is that more carriers are pushing customers to move from standalone auto policies and toward bundled coverage. Indeed, some carriers have instituted a 10-day waiting period before they will issue a standalone Auto policy, which makes the process increasingly complicated. 

As a result of this more intense market, insurers are raising deductibles in Homeowners and Auto policies from $500-$1,000 to $2,500-$10,000. 

Another effect of this turbulence is that underwriters have become extremely picky in their vetting of potential clients. For instance, if someone incurred a water loss within the past few years, some underwriters will ask, “What did they do to mitigate future water losses?” Or if one family member has gotten into a few car accidents, carriers might try to exclude that driver from the Auto policy. Some carriers are even going so far as to say, “We don’t want to take on anyone who had a claim in the past.” And for existing clients, carriers are slapping new requirements on their Home policies. 

We’re also seeing more interest in the realm of Umbrella Insurance, especially if there’s a home or an auto liability claim. Which brings us to one piece of good news here: Despite this turbulent personal lines environment, the costs of Umbrella coverage are staying largely steady, albeit with lower policy limits due to the increasing number of lawsuits and the severity of losses. Of course this can get expensive if people are covering multiple homes or multiple autos, and clearly the limit plays a role, but for the most part, we haven’t seen notable increases on Umbrella coverage.  

What Can You Do? 

Admittedly, this picture doesn’t present a particularly rosy outlook for customers. That said, there are things that homeowners can do to improve their chances of getting coverage.  

In fire-prone areas, for example, owners can pursue fire-remediation efforts, such as including specific venting that will keep embers out of the home or using Class A fire-rated roofing products, such as composite shingles, metal, concrete or clay tiles. In other instances, homeowners can protect their property against the risk of an earthquake by installing a gas shock valve. 

In some areas, these types of efforts will be enough. But in other places, such as around Lake Tahoe, underwriters are simply refusing to write coverage because of the location’s susceptibility to catastrophic loss.  

That can lead consumers to the surplus market, where companies work with reinsurance carriers for third-party coverage of especially large claims. And if they can’t get coverage there, customers can look to state offerings, such as the California Fair Plan and Florida’s Citizens Property Insurance.  

A Changing World 

For a more in-depth look at strategies for navigating overall P&C market conditions, read Alera Group’s Property and Casualty Market Update. The report provides valuable information on factors driving the current P&C market, with analysis categorized by lines of coverage, commercial as well as personal.    

A qualified agent or broker can help you navigate this complicated world with thorough, clear documentation of risk management programs, claim histories and financials. With more than 180 offices around the country, Alera Group combines local service with national reach and provides individualized, carefully crafted coverage programs that fit each client’s unique needs.  

To get the full Market Update, click on the link below.  

GET THE UPDATE 


About the Author  

Chelsea Trenkwalder, CIC 
Vice President, Private Client Group 
Legacy Risk & Insurance Services, An Alera Group Company  

Chelsea Trenkwalder has been with Legacy Risk & Insurance Services, An Alera Group Company, since 2012. Her responsibilities include helping clients protect their loved ones, homes, autos, collections and other possessions through personal insurance solutions.  

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