Understanding the Surge in Insurance Rates
If you are paying attention, you’ve likely noticed an increase in your insurance rates. This has many people asking why? In this blog post, I will give you some of the key factors contributing to the surge in insurance prices and hopefully give you some insights into the dynamics at play.
Increasing Costs of Claims One of the primary drivers of escalating insurance rates is the rising costs associated with processing and paying out claims. With increased cost for parts, building materials and labor, insurers are often faced with larger and more expensive claims than in the past. This trend directly impacts their ability to maintain affordable premiums. Simply put, inflation is working its way through the economy and the insurance companies are forced to adjust their rates.
Frequency and Severity of Natural Disasters Natural disasters, such as hurricanes, wildfires, and floods, have become more frequent and severe in recent years. These catastrophic events result in substantial financial losses for insurers, leading to the need for higher premiums to cover the increased risk. While the Midwest may not see wildfires, floods, or hurricanes, we have seen an increase in other weather-related events such as windstorms & hailstorms.
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Low Interest Rates Insurance companies often invest the premiums they collect to generate returns and cover their costs. However, prolonged periods of low interest rates limit their investment income, prompting insurers to compensate by raising premiums to maintain profitability.
Legal and Regulatory Changes Changes in laws and regulations can impact insurance rates significantly. For instance, alterations in healthcare regulations can influence the costs of medical treatments and subsequently affect health insurance premiums. Similarly, changes in driving laws can impact auto insurance rates.
Underwriting and Risk Assessment Insurers continuously refine their risk assessment processes, which can lead to fluctuations in premiums. If certain factors indicate higher risk among policyholders, insurers adjust rates accordingly to reflect the potential for increased claims.
Insurance Fraud The Coalition Against Insurance Fraud (CAIF) estimates insurance fraud to be $308 Billion Annually. This new study shows the full extent of insurance fraud in the United States.
Adding to the to the complexity of the situation is that many of the insurance companies seem to have been ill prepared for the current environment. We are seeing insurance companies file for bankruptcy, going out of business, seizing to do business in states where they have seen significant losses and some companies have stopped taking on new clients. The insurance industry seems to be in a whirlwind, similarly to the mortgage debacle we faced in 2008 – 2009.
When you add it all up it means that we are all going to be paying more for our insurance. We expect rates to continue to rise for the next few years.
To learn more about these uncertain times and how you can best prepare, send us a message on our website https://www.bragginsurance.com/contact or send us an email to info@bragginsurance.com
