The US personal insurance market has evolved steadily in the second quarter of 2024. We've witnessed a rise in insurance rates from the impact of natural disasters, regulatory changes and economic fluctuations in the marketplace.
- The average personal lines rate increased by 4.75%, positioning the market for improved underwriting performance.1
- Insurance prices for homeowners with properties under $1 million increased by 4.7%.
- The auto insurance rate jumped by 5.3%.
- Personal articles coverage rose 3.7% — a moderate hike compared to other categories.
Price hikes in the homeowners' segment may foster improved results, but concern is rising for potential losses caused by natural catastrophes and increased reinsurance costs.2 In short, there may not be an immediate respite, as underwriters remain reluctant to lower rates amid an active hurricane season later this year.
Why do insurance premiums increase?
Because insurance is based on the shared risk concept, you may see an increase in your rate even if you never made a claim.
Insurance premiums increase due to several rating factors. For example, a car insurance company may raise premiums because of the greater risks associated with the location of the owner's residence: The insurance cost for a car may spike in urban areas with a greater chance of accidents and car theft. Further, a general rate increase in a particular region, stat, or country can often inflate personal insurance rates.
Natural disasters and other calamities have the potential to drain a premium insurance pool swiftly. In such a case, your insurance carrier will increase the premiums for all policyholders in the pool, not just those affected, to reduce losses and replenish the pool faster, ensuring funds are available for future claims.
What are the factors causing an increase in personal insurance rates?
Rise in natural disasters
As insurers anticipate an active hurricane season, underwriters are reluctant to reduce rates. In catastrophe-prone areas, major insurers have restricted capacity, with some downgrading or withdrawing entirely. This reduced capacity may lead to a spike in homeowners' rates later this year. Climatic predictions significantly influence insurance pricing in regions affected by catastrophic events. As insurers adapt, policyholders face higher costs, reflecting increased risk and the personal insurance industry's efforts to maintain solvency and reliability amidst potential natural disasters.
Increased labor and material costs
Higher cost of labor, material and parts have inflated homeowners' insurance rates by 23% across the US. Many homeowners' insurance carriers now favor properties with roofs that are no more than 10-15 years old, which is forcing some homeowners to switch carriers. Additionally, high-net-worth carriers are favoring water-leak detection systems due to frequent water claims. They are also self-insuring or foregoing wind coverage for hurricane damage.
Increasingly frequent automobiles claims
A rise in vehicle accidents, auto theft and claim severity are increasing personal auto insurance rates. Risky driving behaviors such as speeding violations and aggressive driving continue to drive up personal auto insurance premiums. Other factors driving tighter underwriting are the rising expense of healthcare and people's inclination to sue.
Social inflation
Social inflation — social trends toward favoring plaintiffs — is leading to higher jury awards, a changing attitude toward lawsuits, increased litigation and elevated legal costs. Higher claim settlement amounts cut into insurance companies' financial reserves, compelling them to increase premiums.
What trends are shaping personal insurance rates?
Evolving customer needs and advances in technology are influencing shifts in the personal insurance industry. These shifts often result in market disruptions, new product introductions or the creation of new business models. Some of the emerging trends that may keep pushing premium costs include:
- Adoption of vehicle sharing: Shared mobility preferences of Generation Z (people born between 1997 and 2012) and the increase in autonomous vehicles are anticipated to lead to a decrease in the auto insurance market size. This decrease will lead to increased competition, mainly as insurers look to attract Gen Z clients and reduce the average driving age across their portfolio.
- Dependency on usage data: The emergence of telematics and autonomous driving will make insurance risk pricing more dependent on usage data. As a result, personal insurance clients will lean toward insurance products such as usage-based insurance (UBI) and parametric insurance.
- The value consumers place on insurance: The success of home and auto insurance depends on value that insurance provides to the consumer. It's a convenience play for now, but if some of the cost savings are transferred to consumers, insurance may see rapid growth.
- Ecosystems/platforms: The personal insurance industry is likely to see a growth in platforms and ecosystems resulting from the convergence of accelerating technological trends, where insurance service will remain one of the many diverse but related services offered. Platforms and marketplaces are springing up as insurers bring many product offerings together.
Navigating the complexities of rising personal insurance rates can be difficult; hence, having the appropriate insurance in place is essential, whether for home or vehicle. Moreover, you can choose your coverage more wisely if you understand the reasons behind these increases.
Speaking with a Gallagher Personal Insurance advisor can help you secure the right coverage tailored to your needs and safeguard your way of life from unforeseen circumstances.