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Inflation and Catastrophic Losses are Affecting Insurance Rates

Updated: Sep 22, 2023

Insurance companies across the country are taking rate increases and it’s not always easy to understand why, especially if you haven’t had any claims or haven’t seen any severe weather in your neighborhood. However, you've most likely experienced inflation, so the rising costs of goods and services, combined with severe weather in other areas of the country, are influencing what insurance companies charge for coverage.


In total, a combination of inflationary factors, catastrophic storms, legal system abuse, and regulatory restrictions are causing headaches for many insurance companies. As the Wall Street Journal noted in an August 14, 2023 article titled "Wildfires and Thunderstorms Are Throwing Insurance Market Into Turbulence," secondary perils such as “wildfires, major thunderstorms, river floods and landslides have been collectively racking up increasingly sizable insurance losses in recent years.”


In fact, there have already been 14 events in the U.S. in the first half of 2023 that caused insured losses of at least $1 billion. According to PropertyCasualty360.com, this contributed to the 4th highest amount of insured losses on record for the first six months of a year, with a worldwide total of $53 billion.


These results come after many of the largest insurance companies reported very poor results from 2022 in which underwriting losses and expenses well exceeded premiums earned during the year.


David Sampson, president and CEO of the American Property Casualty Insurance Association (APCIA), told Fox Business that decades-high inflation has played a key role in the cost of covering losses. He noted that since the start of the pandemic, home-related construction materials are up more than 35% in cost, whereas the cost of labor is up 30%. Similarly, vehicle parts and equipment costs are up 30%. Autos are also taking longer to repair, which in turn causes insurance companies to pay out more in rental reimbursement coverage.


While storms, wildfires, and inflationary factors are the most visible of the factors affecting insurance rates, legal system abuse is taking a toll on the cost of insurance as well. Similarly, worsening regulatory restrictions in various states impede the ability of insurance companies to properly manage their risk or charge an adequate rate that properly covers their risk.


To cap it all off, the cost of reinsurance is increasing while capacity is shrinking. Reinsurance, often called “insurance for insurance companies,” plays a critical role whenever catastrophic loss events occur. Increased costs of reinsurance eventually get passed down to consumers while decreasing capacity in reinsurance markets is causing insurance companies to tighten their underwriting guidelines, withdraw from specific lines of coverage or classes of business, or withdraw from states completely.


The Uhl Agency is here to help during these difficult times and our team is ready to speak with you to address any concerns you may have. As an independent insurance agency, we represent multiple insurance companies and can advise you if changing your insurance program is in your best interest. For additional tips on how to reduce your personal insurance costs, please read our tips on how to reduce your home insurance costs along with how to lessen your auto insurance costs.

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