Why Are Insurance Premiums Skyrocketing Across the Board?

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The price of eggs, up 70%, is the latest headline-catching price increase during this period of high inflation.

But, more quietly, insurance premiums are rising at a rapid pace. That’s especially true for auto and homeowners insurance.

What is happening with the insurance industry? That’s what a listener of the Clark Howard Podcast recently asked.

Why Are My Insurance Premiums Rising So Fast?

Why are all my insurance premiums suddenly rising like crazy?

That’s what a listener wanted to know on the March 29 podcast episode.

Asked Curtis in California: “Our umbrella insurance [premiums] had an incredible leap from last year from $325 to $569 for $2 million in coverage. I checked with our homeowners insurer, and it’s even more [for an umbrella policy], $593! What is going on?”

Insurance companies rely on actuaries — fancy mathematicians — to calculate future risk. From those educated guesses, insurance companies figure out where they need to price their products to make sure they stay profitable.

Those calculations have failed to account for historic inflation, the COVID-19 pandemic, costly natural disasters and other issues. As a result, many insurance companies have been feeling a financial squeeze.

“The auto and homeowners insurance markets are having what’s known as an underwriting problem,” Clark says. “That’s a nice way of saying they’ve mispriced so much of the insurance they sell. And their losses are way exceeding what their guesstimates said they would.

“A number of insurers are collecting premiums way below what their actual cost of doing business is. I don’t think there’s a specific reason why an umbrella policy, which is an excess liability policy, would be going up. But overall, insurance companies have been collecting far too few dollars.

“You did the right thing by checking with both major insurers you do business with.”

Why Are Auto Insurance Premiums Rising?

Yearly car insurance premiums have risen more than $240 on average. It’s a trend that will probably continue — or at least reach your wallet the next time your auto insurance premiums reset.

Auto insurance premiums are increasing for some logical reasons.

  • Repairing and replacing vehicles costs more money than it did just a few years ago.
  • Accidents and insurance claims are happening more frequently.
  • Medical care is more costly than it used to be.
  • Inflation has made everything more expensive. (For example, higher wages for people who deliver and install car parts.)
  • There’s been a bizarre plague of catalytic converter thefts.

Clark advocates for raising your insurance deductible to lower your premiums. You can also consider letting your auto insurance company track your driving, making sure your insurance company knows if you’re a low-mileage driver and bundling your auto and homeowners insurance for a potential discount.


Why Are Homeowners Insurance Premiums Rising?

Homeowners insurance premiums are rising for many of the same reasons afflicting auto insurance policies.

  • Labor and construction costs on new homes and home repairs have soared, even if they’re down from their peak.
  • The number of catastrophic claims due to natural disasters in states like Florida have been much higher than insurance companies anticipated.
  • As your home ages, it’s more likely that things break. Water damage and other potential major costs are more likely with time.
  • Were you one of the hundreds of thousands of people who installed or ordered pools at your home during the COVID-19 lockdown period? You now have an “attractive nuisance” that increases your liability.
  • The more claims you file over time, the more expensive your insurance premiums become.

Final Thoughts

Insurance companies did not do a good job of predicting their potential liabilities. That’s especially true for auto and homeowners insurance companies.

You can expect to see some sticker shock on those policies the next time your premiums renew.

Because many insurance companies are not doing so well financially, costs are going up across the board. Many companies offer all sorts of different insurance types. So if they’re getting hammered on auto and homeowners insurance claims, they may raise prices across the board, even on unrelated insurance types.

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