Rising Homeowners Insurance Costs Since Pandemic Driven by Persistent Inflation, Replacement Cost Increases, Prolonged Supply Chain Issues, and Legal System Abuse
2024年7月17日 - 12:03AM
ビジネスワイヤ(英語)
The recent rise in U.S. homeowners insurance costs have been
driven by a combination of increasing natural catastrophe losses
and extraordinary inflation coming out of COVID, according to the
Insurance Information Institute’s (Triple-I) latest Issues Brief.
Even more, Triple-I noted that legal system abuse is also
proliferating the cost increases.
Trends and Insights: Drivers of Homeowners Insurance Rate
Increase examines the dynamics underlying these price shifts and
why insurers must be forward-looking in their approach to pricing
these policies.
“Much like Americans are experiencing higher prices for
virtually all material goods, a key driver for homeowners insurance
has been around the likes of construction materials, which are an
important element used when insurers help customers rebuild after
catastrophe strikes,” said Sean Kevelighan, CEO of Triple-I.
“According to Triple-I’s own economic analysis, cumulative
replacement costs related to homeowners insurance soared 55%
between 2020 and 2022.”
Triple-I noted that Americans are moving to places with a high
risk of climate disasters, such as the Southeast and Southwest,
despite extreme weather events increasing in frequency and
intensity in recent years. Losses related to natural disasters have
increased tenfold from the 1980s to the 2020s (in 2023
dollars).
Disaster losses along coastal areas are likely to escalate in
the coming years, in part because of significant increases in
building and development.
“Another unfortunate factor proliferating the rising costs of
insurance is legal system abuse, which basically entails billboard
attorneys swaying Americans toward litigation as a first step,
rather than one of last resort,” said Kevelighan. “This unfortunate
phenomenon is a problem that needs more attention and fixing. For
example, one element, which involves third parties funding
litigation for profit has virtually zero transparency. Third-party
litigation funding has become a multibillion-dollar global asset
class of dark money, in which the likes of foreign governments can
even invest and profit from the U.S. legal system. Beyond being a
potential national security threat, these sovereign funds usually
do not pay taxes on these investments,” he added.
Even before COVID, homeowners insurers struggled to maintain
profitability, as premium rates have not kept up with rising costs.
The 2023 net combined ratio of 110.9 marked the industry’s worst
underwriting results since 2011. In other words, for every dollar
taken in, insurers paid out almost $1.11 in claims and expenses
last year.
The prospect of the U.S. Federal Reserve lowering interest rates
because of inflation moderation holds promise for restoring
momentum in new home sales and homeowners insurance growth. While
rising interest rates support investment income and create more
attractive investment and reinvestment opportunities for insurers,
they must be balanced with rates that will slow inflation,
stabilize the cost of goods and services, and ease insurers' costs,
Triple-I’s Issues Brief noted.
“Insurers play a vital role in the economy, protecting against
financial losses due to unforeseen events such as natural
disasters,” said Kevelighan. “However, if insurance companies were
to become unprofitable and unable to meet their financial
obligations, it leaves policyholders without coverage when they
need it most.”
About the Insurance Information Institute
With more than 50 insurance company members — including
regional, super-regional, national, and global carriers — the
Insurance Information Institute (Triple-I) is the #1 online source
for insurance information in the U.S. The organization’s website,
blog and social media channels offer a wealth of data-driven
research studies, white papers, videos, articles, infographics and
other resources solely dedicated to explaining insurance and
enhancing knowledge.
Unlike other sources, Triple-I’s sole focus is creating and
disseminating information to empower consumers. It neither lobbies
nor sells insurance. Triple-I offers objective, fact-based
information about insurance – information that is rooted in
economic and actuarial soundness. Triple-I is affiliated with The
Institutes Risk and Insurance Knowledge Group
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version on businesswire.com: https://www.businesswire.com/news/home/20240716973428/en/
New York Press Office: Loretta Worters, 917-208-8842,
lorettaw@iii.org