Why Are Property Insurance Premiums Increasing?
Most people can expect their insurance premiums to go up this year.
Several factors are behind the rising insurance premiums, but they all point to one general culprit: rising costs. The increasing frequency of severe weather events is causing more serious damage and costly insurance claims. Fraud is on the rise, along with the increased cost of building materials due to supply chain issues and unfilled jobs.
Insurance companies exist to protect customers from the high cost of a devastating loss. But over time their rates have to be higher than their costs, or the insurance companies wouldn’t have any capital left.
In fact, about a dozen companies have been placed into receivership by the Leon County Circuit Court or stopped selling home insurance in Florida since early 2020 because of this struggle, including:
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- FedNat Insurance Company
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- St. Johns Insurance Company
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- United Property & Casualty Insurance Company
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- Gulfstream Property & Casualty Insurance Company
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- Southern Fidelity Insurance Company
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- Bankers Insurance Group
So what’s happening in coastal states that is pushing home insurance rates? The are several reasons, but they can be broken down into five categories:
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- Reinsurance
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- Insurance Fraud
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- Litigation Costs
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- Catastrophic Claims
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- Inflation
Just about every state has issues with each of these to some extent, but Florida is currently struggling with all of them.
5 Causes for Rising Insurance Premiums
Reinsurance Rising
Think of reinsurance as insurance for carriers. Just like you get a homeowners policy. An insurance company buys reinsurance that covers some or all of its risk to help ensure it can pay policyholders after a catastrophic event﹘particularly in catastrophe-prone states like Florida and Lousianna. But sometimes the cost of reinsurance goes up, and when it does, so will homeowners insurance premiums.
Historically, larger storms have caused larger losses, and that’s caused the cost of reinsurance to increase. That’s a cost companies have to cover when they set their rates.
Extreme Weather Events and Catastrophes
Hurricanes, floods, tornadoes, wildfires and other severe weather events have become more frequent, destructive and costly. In 2021 alone, the United States sustained 20 weather events with losses exceeding $1 billion each. Even a severe thunderstorm or strong winds can cause extensive damage. As weather-related damages go up, so does the cost of insurance overall. With increased chances of experiencing mass claims all at once, insurance companies have to set rates to cover the potential claims.
Insurance Fraud
While increasing reinsurance costs is a driver of property insurance rate increases, litigation costs are another issue (particularly Florida) insurance companies have to contend with when pricing homeowners insurance. And that problem is compounded by fraud, specifically insurance scams involving assignments of benefits (AOB) and repairs following catastrophic storms. In theory, an AOB should make life easier for everyone, especially the policyholder. In practice, AOBs frequently turn into inflated claims and unnecessary litigation for insurance companies.
Litigation Now Commonplace
Florida is the site of 79 percent of all homeowners insurance lawsuits over claims filed nationwide, even though Florida’s insurers receive only 9 percent of all U.S. homeowners insurance claims, according to the Florida governor’s office. During a special legislative session in May 2022, Florida lawmakers passed Senate Bill 2B, which Gov. Ron DeSantis signed into law. The measure is aimed at easing homeowners’ premium increases and reducing excessive litigation.
Inflation Affects Everyone
Another key consideration when pricing property premium coverage is the cost to repair or rebuild a home or business in the event of a loss. This is being significantly impacted by inflation. The rising cost of building materials, supply chain issues and unfilled jobs due to COVID-19 disruptions are driving up the costs of property repairs.
We Are Here To Help Navigate Rising Insurance Premiums
Amid market trends and global factors mainly outside the average policyholder’s control, be cautious of false promises of lower rates for commercial and personal lines coverage. Often, policyholders will shop their insurance only to realize their coverage is higher, offer less protection than what they had or cancel their current coverage only to not be able to be bound with another agent for a variety of reasons. Insurance rates are increasing nationally, not just in Florida or for homeowners. Michael Almond, who spearheads our Myrtle Beach, SC office, was cited by The Post and Courier in an recent article covering coastal South Carolina condo owners who could see their hazard insurance rates skyrocket. While the article focuses on the South Carolina condo market, the report outlines the primary factors driving insurance premiums nationally.
Despite challenging market conditions, Acentria Insurance is here to help. With over 50 locations and decades of experience; we are your dedicated resource for all things insurance. Allow us to properly ensure your home or business and help avoid common pitfalls that can result in higher premiums with insufficient coverage or even loss of insurance. Contact us today.
