The Rising Price of Insurance… Explained

By Sam Hanmer, Rush Insurance Group, Inc.

If you recently purchased auto and home insurance, you may have seen a dramatic increase in your premiums. It’s so prolific it’s making national news. Many of you are asking the question why. Some of you have never even put in a claim yet your premiums continue to rise. In an attempt not to bore you with insurance speak I will try and educate you as to why this is happening.

Let’s tackle the automobile premium increase first. There are several factors in play here. First, the pandemic created a supply chain issue which dramatically affected the availability of car parts. Economics will tell you that if you have high demand and lack of supply the price for these parts would increase which is what has happened. In addition, the automobiles are now “smart” automobiles in that they have sensors, cameras, computers, and other safety and new, convenience devices.

There was a time where you could replace a windshield for a few hundred dollars. Now it’s not unusual for a windshield to be several thousand dollars. Insurance companies are increasingly “totaling” autos because it’s cheaper than trying to fix them. Distracted driving accidents are decidedly on the rise despite the availability of hands free and heads up driving features.

Homeowners insurance also continues to have had several years of increase in pricing. Similar to the auto issue, the supply chain and consequent increase in the cost of materials have played a significant role in premium increases. You’ve probably noticed two factors in your homeowner’s renewal. The first is that insurance companies are increasing their rates. The second is they are increasing the “Coverage A” amount, or the insured value of your home. The insurance companies are getting two bites of the premium apple.

Higher rates and higher values equal higher premiums. The other factor hitting us all is the continuing increase in natural disasters. One might observe that here in New England we don’t see a lot of these and statistically you’d be correct. Where it filters down to us is something called reinsurance.

Insurance companies also buy insurance through these reinsurance companies. Reinsurance companies decide how much of any one loss they will pay themselves. The reinsurance market is small compared to the retail insurance market you see advertised etc. State Farm, Gieco, Mapfre, Travelers, are examples of retail insurance companies. So when a natural disaster hits, it affects the reinsurance market in a much more significant way than the retail market. Consequently, when these retail insurance companies renew their own insurance with these reinsurers their premiums go up. The companies then will shift their increase to the end user, which is us.

One last area in which reinsurance affects us is as consumers of homeowner’s insurance. In layman’s terms, they dictate to the retail insurance company where and how many new policies they can issue. Some of you may have experienced this when trying to insure a home in a coastal community - companies simply won’t write you a policy.

As an insurance agent I certainly understand your frustration watching your premiums continue to go up. Just know there will be a leveling off when the pricing of home and auto start to bring better results to the industry. Your agent is working diligently to minimize any premium increases. Please be patient with them as this has been unprecedented in the auto and homeowner’s market.

Please reach out if you’d like to review your current policy.