208 W 5th Street, Marshfield, WI info@marshfieldinsurance.net

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  • 208 W 5th Street, Marshfield, WI 54449
  • info@marshfieldinsurance.net
  • 715-387-4443

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Rising Insurance Costs Explained

Wondering why insurance rates are rising? The significant rate changes and coverage adjustments we’re witnessing stem largely from the $200 billion underwriting loss experienced by the property casualty industry in 2022 and 2023.

This staggering loss was primarily due to a series of 45+ multibillion-dollar storm events and the escalating phenomenon of nuclear verdicts resulting from social inflation, particularly in the auto insurance sector. These past two years have marked the most severe claims period in a century.

Additionally, property insurance companies are tightening their underwriting criteria not solely because of profitability concerns but also due to the heightened risk landscape. Most insurers hedge against catastrophic weather events by purchasing reinsurance, which entails setting weather event deductibles.

In essence, if a company’s reinsurance deductible is $100 million, their reinsurance covers costs exceeding this threshold. As a significant portion of the 2022 and 2023 claims were covered by reinsurance, reinsurance rates have surged, sometimes doubling.

Consequently, carriers are adjusting by raising their reinsurance deductibles, becoming more selective with larger risks, and imposing stricter conditions before extending coverage.

In summary, insurance rates can rise for several reasons, including:

  1. Increased Claims: A rise in the number or severity of claims within a particular area or industry can lead to higher insurance rates. This could be due to factors such as more frequent severe weather events, increased instances of accidents, or higher costs of repairing or replacing damaged property.

  2. Underwriting Losses: Insurance companies base their rates on the likelihood of having to pay out claims, as well as the anticipated costs of those claims. If an insurer experiences significant underwriting losses—meaning they pay out more in claims than they collect in premiums—they may raise rates to remain financially stable.

  3. Economic Factors: Economic conditions, such as inflation and changes in interest rates, can impact insurance rates. Higher inflation may lead to increased costs for materials and labor, affecting the cost of repairs and replacements. Additionally, low interest rates can reduce investment income for insurance companies, prompting them to raise rates to maintain profitability.

  4. Catastrophic Events: Large-scale natural disasters or catastrophic events can cause widespread damage and result in significant losses for insurance companies. Following such events, insurers may raise rates to mitigate their increased exposure to risk.

  5. Regulatory Changes: Changes in regulations or legal environments can affect insurance rates. For example, new laws mandating coverage requirements or increasing insurers’ financial obligations may lead to higher premiums.

  6. Technological Advances: While advancements in technology can improve risk assessment and claims processing efficiency, they can also introduce new risks and liabilities. Insurers may adjust their rates to account for these evolving risks and ensure they have adequate reserves to cover potential losses.

  7. Market Competition: In some cases, insurance rates may rise due to changes in market dynamics or shifts in competition. If insurers face increased competition or consolidation within the industry, they may adjust their rates to maintain profitability or gain market share.

Insurance rate increases are often influenced by a combination of these factors, as well as other industry-specific considerations. It’s essential for consumers to stay informed about changes in the insurance market and periodically review their policies to ensure they have adequate coverage at a competitive rate.

How an Independent Agent Helps

An independent insurance agent can be especially valuable during times of rising costs for several reasons:

  1. Access to Multiple Carriers: Independent agents work with multiple insurance carriers, providing you with access to a wide range of coverage options. This means they can shop around on your behalf to find policies that offer the best value for your needs, even as costs are rising in the market.

  2. Expertise and Guidance: Independent agents have extensive knowledge of the insurance industry and can provide expert guidance on navigating the complexities of insurance policies. They can help you understand your coverage options, identify potential areas for cost savings, and make informed decisions about your insurance needs.

  3. Personalized Service: Independent agents offer personalized service tailored to your individual circumstances. They take the time to understand your specific needs and concerns, helping you find coverage that aligns with your budget and priorities, even as costs are increasing.

  4. Advocacy and Support: If you experience a rate increase or need to make changes to your policy due to rising costs, an independent agent can serve as your advocate. They can review your policy, discuss options for adjusting coverage or exploring discounts, and negotiate with insurers on your behalf to help mitigate the impact of rising costs.

  5. Long-Term Relationship: Independent agents focus on building long-term relationships with their clients, rather than just making a sale. This means they’re invested in your satisfaction and will continue to provide support and guidance over time, helping you navigate changes in the insurance market and adjust your coverage as needed.

An independent insurance agent can provide valuable assistance and support during times of rising costs by offering access to multiple carriers, expertise and guidance, personalized service, advocacy and support, and a long-term relationship focused on meeting your evolving insurance needs.

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