Over the past several years homeowners’ insurance and auto insurance policy premiums have been increasing across the country. Between 2023 and 2024, homeowner and auto insurance premiums increased on average by 23% and 26% respectively. This rise in premiums can be attributed to a variety of factors. Specifically, the surge has been blamed on the lingering effects of the Covid-19 pandemic, the increasing occurrence of natural disasters, and alarming new legal tactics by plaintiff firms. Despite the increase in premiums, insurance companies are becoming more and more unprofitable as they are unable to keep up with rising costs.
The Covid-19 pandemic left the country in a detrimental economic state that it is still struggling to recover from. In particular, the pandemic led to inflation, labor shortages, and supply chain disruptions. The economic impact of the pandemic has driven up the costs of materials, including lumber and car parts. These materials are often used in repairing damaged homes and automobiles. As a result, the higher cost of materials has led to increased expenses for insurers in settling claims. To offset the higher claims they must cover, insurers are compelled to raise premiums, as they currently pay out $1.11 for every dollar they receive.
During the past three years, U.S. insurers disbursed $295.8 billion in natural disaster claims due to an increase in the occurrence of natural disasters. Although insurance premiums are increasing across the country, states that are more prone to natural disasters such as hurricanes, floods, and wildfires, are experiencing even higher increases in their premiums. When a catastrophic disaster occurs, the impacted area experiences an economic ripple effect as supply lines are shut down, and there is a surge in insurance claims. Unfortunately, these increases are likely to continue as it is predicted that, due to climate change, natural disasters will occur more frequently in the coming years.
Another factor that is contributing to the rise in homeowners and auto insurance premiums is the expansive growth of Legal Claim Funding. Legal Claim Funding is when hedge funds and other financiers advance money to the plaintiff or plaintiff’s law firm in exchange for a percentage of the settlement or judgement. The Legal Claim Funding industry has about 15.2 billion dollars in commercial litigation investments just in the U.S. Due to this outside funding plaintiffs have little to no risk in filing and advancing non-meritorious claims. Therefore, more plaintiffs are pursuing litigation, in effect, forcing insurance companies to spend more money on litigation expenses. This soar in litigation expenses necessitates that insurance companies raise policy premiums.
As a result of the economic effects of the pandemic, the increase in natural disasters, and Legal Claim Funding, insurance companies are finding new ways to stay in business. Although insurance companies are raising their premiums they are not rising as fast as costs. Thus, to combat these effects insurance companies are reevaluating their policies. Some carriers are increasing rates, raising deductibles, changing their risk modeling, and excluding certain events from coverage. In the most extreme cases, some insurance providers no longer will offer coverage in areas that are prone to natural disaster such as properties near the coastline. Why does this matter? If insurance companies are pulling coverage from certain risk prone areas, then those the most in need of insurance may go without it. An increase in uninsured homeowners and automobile drivers increases risk for others.
For additional questions, please contact Molly Hecht, Esq. and/or Glen Shikunov, Esq.
This article was prepared by McCormick & Priore, P.C. to provide information on recent legal developments of interest to our readers. This publication is in no way intended to provide legal advice or to create an attorney-client relationship. All Rights Reserved. This article may not be reprinted without the express written permission of McCormick & Priore, P.C.
Resources:
- Homeowners insurance rates skyrocketed in these 10 states — here’s how to lower your premiums (CNBC)
- The True Cost of Auto Insurance in 2024 (Bankrate)
- Rising Homeowners Insurance Costs Since Pandemic Driven by Persistent Inflation, Replacement Cost Increases, Prolonged Supply Chain Issues, and Legal System Abuse (Insurance Information Institute)
- Trends and Insights: Homeowners Insurance Rates (Insurance Information Institute)
- The Impact of Natural Disasters on Insurance Rates in 2024 (Bankrate)
- What You Need to Know About Third Party Litigation Funding (U.S. Chamber of Commerce Institute for Legal Reform)
- Home Insurers Cut Natural Disasters from Policies As Climate Risks Grow (Washington Post)
- The Economic Consequences of a Catastrophic Earthquake: Proceedings of a Forum (National Academies Press)
