Homeowners in the US are facing rising insurance costs due to a combination of factors, including persistent inflation, increased replacement costs, ongoing supply chain issues, and legal system abuse. The Insurance Information Institute (Triple-I) highlighted these issues in its latest Issues Brief, Trends and Insights: Drivers of Homeowners Insurance Rate Increase.
Sean Kevelighan, CEO of Triple-I, explained that a key driver of the rising insurance costs is the increase in prices for construction materials, which resulted in a surge in cumulative replacement costs related to homeowners insurance by 55% between 2020 and 2022.
“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 Kevelighan.
Additionally, the frequency and intensity of natural disasters have escalated, particularly in high-risk areas like the Southeast and Southwest. According to the report, losses from natural disasters have increased tenfold from the 1980s to the 2020s. Coastal development further exacerbates these potential losses.
Another factor contributing to the rising costs is legal system abuse. Kevelighan pointed out that “billboard attorneys” encourage litigation as a first resort, which drives up insurance costs. The lack of transparency in third-party litigation funding, now a multibillion-dollar global asset class, is particularly concerning. Foreign investments in these funds pose a potential national security threat and are often untaxed.
The report noted the insurance industry has been struggling to maintain profitability, with a net combined ratio of 110.9 in 2023, marking the worst underwriting results since 2011. Insurers paid out almost $1.11 for every dollar taken in last year.
Triple-I’s brief suggests that a moderation in inflation and a potential decrease in interest rates by the US Federal Reserve could bolster new home sales and the growth of homeowners insurance. However, insurers must balance investment income from higher interest rates with the need to control inflation and stabilize costs.
“Insurers play a vital role in the economy, protecting against financial losses due to unforeseen events such as natural disasters,” Kevelighan emphasized. He warned that unprofitable insurance companies unable to meet their financial obligations would leave policyholders vulnerable.
The Insurance Information Institute (Triple-I) is a leading source for insurance information in the US, with over 50 member companies. The organization is dedicated to enhancing consumer knowledge by providing information about insurance. Triple-I is affiliated with The Institutes Risk and Insurance Knowledge Group.
Do you have something to say about this story? Let us know in the comments below.
