Why are insurance rates increasing so much?
Why the heck are insurance rates increasing so much?
We continue to get questions regarding insurance rates increasing. Instead of avoiding the question, we figured we’d address it.
An important fact to keep in mind is that insurance companies have to have there rates approved my the state insurance commissioner. This means any rate increased have to be justified and approved. So contrary to popular belief, they cannot file for a rate increase just to make higher profits.
What factors are behind insurance rates increasing?
Insurance companies are affected by the same economic factors as any other businesses. They are incurring increased costs in many areas of their business.
These costs include:
Increased minimum wage laws in the state and the changes in the overall work environment has caused wages to increase significantly.
When wages increase, so do other expenses that are wage driven, like: Workers compensation insurance premiums, Wage based taxes (FICA, Medicare, etc.), 401K matches, etc.
For insurance companies, this also increases the cost to repair a vehicle or property. The cost of labor for the repair shops and construction companies have increased dramatically.
Increasing costs of healthcare
The ever rising cost of healthcare in the US has an impact on insurance rates. Healcare costs affect many types of insurance rates. The obvious insurane product it affects is health insurance or individuals and businesses.
Because injuries are covered by various types of liability insurance,the rising healthcare costs can also have an affect on the following:
- Auto Insurance
- Home Insurance
- Workers Compensation Insurance
- Business Liability Insurance
- Business Auto Insurance
Rising cost of technology
The cost of technology continues to increase as well. Insurance companies must keep up with the latest technologies in order to stay competitive. This includes investing in software and systems that allow them to provide better services for their customers
Increased costs of good/supplies / Inflation
We’ve all seen the prices of goods increasing significantly over the past several years. For most businesses, we see our office supplies costs go up and also cost of goods sold (or supply chain). Insurance companies are affected by the price increases and slowdowns in the supply chains as well.
When the price of lumber jumped in 2020, it affected the expenses of every insurance company who sells property insurance. The cost of replacement parts are rising due to a combination of increasing demand and decreased availability, leading manufacturers to set higher prices for components that are needed by businesses.
Bottom line is insurance rates are increasing due to the increased costs
Increased Natural Disasters
The scope and frequency of natural disasters have increased over the past decade. Just look at all of the fires, tornados, and storms we see on the news every day. With an increase in natural disasters, insurance companies must charge more to cover potential losses due to property damage and other destruction.
Growing number of lawsuits
An increasing number of businesses and individuals are facing lawsuits over minor infractions or perceived violations. Defending these lawsuits is expensive for the insurance companies. Defense cost is a significant expense for insurance companies these days.
Although it may not seem fair when you see your insurance rates going up, just remember that the insurance company is a business. And they cannot operate if they are losing money by paying more in claims and expenses than they take in for premiums.
Check out my video I did on this topic and it talks about how lucky we are in Maryland for the insurance industry to still have options for insurance companies.
I also wrote a blog on the reasons that insurance rates go up every year. You can access that blog below:
We are an insurance consumer just like you. So we are also feeling the pain of the insurance rates increasing..
You can rest assured that you are still in good hands with Huff Insurance and we will always strive to make sure you are getting the best coverage at the best value.