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  • Writer's pictureJoyce Insurance

Insurance Inflation: Why Homeowners and Auto Insurance Become More Costly?



Are you feeling the sting of sticker shock on your insurance rates this year? You are probably wondering why your insurer has increased your policy premiums. You're not alone! Across the U.S., insurers requested an average rate hike of 20.9% in the individual market, which the Department of Financial Service cut by 36% to 13.5% for 2024.


While there is no shortage of reasons why insurance costs have gone up, we're here to break it down in the simplest terms to inform and empower you to tailor-fit your policy coverage.


Reasons Behind Price Increases for Homeowners


1. Pricier Construction Costs


Due to a wobbly supply chain and inflation we have seen, construction labor costs have gone up by 11.8% since 2020. Furnishings, household equipment and belongings have also increased by 16.1% since 2020. It means higher homeowners premiums because your home is requiring higher dwelling coverage limits to keep up with the rising prices to rebuild or repair the damage. 


2. More Natural Disasters


Nasty weather events caused by climate change are also causing mayhem. Home damage is more likely to happen because hurricanes, wildfires, floods, and other natural disasters have been occurring frequently. There were 119 catastrophes in 2022, 32% up from 90 disasters in 2019. Insurers are upping their game (and your premiums) to weather these disasters and ensure they have the money to pay future claims. Still, it’s riskier not to have homeowners insurance because you cannot rely on anyone in the worst-case scenario that your home is destroyed by Mother Nature. To lower your premiums, you should maintain your home and make it more disaster-resistant. Implement safety measures like installing security systems, smoke detectors, and reinforced doors.


3. Higher building costs


Residential building costs have gone up 27.7% higher since 2020. Increased construction expenses mean it would cost more to rebuild or repair a home in case of damage or destruction. Ultimately, as building costs escalate, insurers reflect these changes in premiums to maintain adequate coverage for policyholders and to offset potential future claims.  The bottom line, carriers are increasing your homes dwelling replacement cost to keep up with incrased costs to rebuild.  Increased dwelling coverage results in higher insurance premiums


4. More Claims 


Ever filed a claim? Your policy premiums are also adjusted depending on your claim history. Once you file a claim on your home insurance — whether due to theft, vandalism, or accidents — the prices of premiums increase. And it’s not just you! If your neighbors or people in your area are making claims left and right, it might affect your rates, too. Insurance is essentialy a communites pooling their  money to pay each others claims.  If your neighbors are filing claims, that pool of money decreses.  Insuance carriers increase rates to refill the pool of money.  For instance, the difference between claims and expenses paid and premiums collected by insurers increased to nearly 101.5% in 2021 from 92.5% in 2020.


Reasons Behind Price Increases for Drivers


1. Accident Record


Accidents and tickets can jack up the prices of your insurance rates. They will charge more from you if you’re prone to mishaps or if your car is more at risk of being destroyed or damaged. If you want to keep your car premiums in check, you should be more careful in driving and keep those mishaps at bay. Practice defensive driving techniques and avoid using the phone while on the road.


2. More Mileage


Logging in more miles in your car means insurers see you rolling the dice on accidents. Conversely, if you drive very little in a year, you might qualify for a low-mileage discount as a “pleasure use” driver with less risk of being involved in mishaps or unfortunate incidents.


3. Costlier Auto Repair and Parts Costs


When auto repair and parts costs rise, it directly impacts the expenses an insurance company might incur when repairing or replacing a vehicle after an accident. Insurers factor in the cost of parts and labor when determining claim payouts, so if these costs increase, premiums often follow suit. Higher repair and parts expenses can also lead to increased claim frequencies or higher claim amounts, prompting insurers to adjust premiums to cover these anticipated costs.


4. Adding More Expensive Vehicles


High-tech, more expensive vehicles with fancy cameras and blind spot detection sensors are not cheap to repair. These accessories are easily damaged and require a trained technician and specialized tools to replace so expect higher premiums for that swanky set of wheels. Of course, we cannot expect a Honda CR-V or Subaru Crosstrek driver to have the same premiums as the driver riding a Tesla Model S Performance or a Lexus ES 300H.


To bring down your premiums, it’s best to review your insurance at least once a year with your agent. At Joyce Insurance, we can also check your existing policy and ensure it protects your home and car at the most affordable price.  Call us today.

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