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Insurance Rate Increases... Why?

Updated: Aug 30, 2023

As agents, we field a lot of calls about rate increases. We don't mind these calls to ensure you know what you are paying for. We understand rate increases are difficult to swallow (believe us, we know as we pay insurance, too!). That's why, as insurance professionals, we are here to help explain. Rate increases occur for many reasons: vehicle changes, accidents, violations, aging, youthful drivers (darn kids!). These are the most common - but what about when you have a clean record, no kids, etc.. Why are they increasing, then? Let's see if I can answer that below.

Driving behavior changed dramatically due to COVID-19, especially at the onset of the pandemic. Fewer miles driven meant fewer accidents and lower overall costs for auto insurers. The industry responded quickly by issuing refunds/credits to customers, lower rates, or both. I know - I'm supposed to be talking about the rising rates. Please keep reading...

In recent months, driving behavior has nearly returned to pre-pandemic levels, as has the frequency of accidents. As the number of claims returns to (and then surpasses) pre-pandemic expectations, insurers' costs follow. Insurance rates must return to (and then surpass) where they were before the pandemic to pay the increasing claims. Still not the answer you want? Yep - keep reading...

Rising Repair and Replacement Costs (severity)

Ahh, here is what you are looking for...

When accidents occur, auto insurers pay for the parts, labor, and other costs of repairing or replacing the damaged vehicles. Since the pandemic's start, supply chain disruptions and labor shortages have driven these costs up substantially.

The Bureau of Labor Statistics reports that the average vehicle repair costs have risen more than 4% over the last year, while used car and truck prices have skyrocketed by more than 40% over the same period! Initially, reducing accidents offset the rising vehicle repair and replacement costs. That is no longer the case. Driving behavior has returned to normal, yet these costs continue escalating. And your homeowners? The same principle applies. Labor and material costs continue to skyrocket, increasing your home's replacement costs and premiums.

Insurance rates will always fluctuate with the market. We are adjusting rates to cover increasing costs. I don't know someone alive who likes rate increases (if you exist, please find me; I would love to chat!). However, when we can understand or relate, it's an easier pill to swallow. So we see the rates increase and the discounts for the pandemic removed as we try to "return to normal."

So, as you watch everything around you increase in price and continue to climb, please note that the insurance industry is no exception to that rule. Rising rates will affect all lines of insurance. When your renewal comes, and you take notice of the rate increase, at least there is an explanation as to why. Don't hate on your agents! We strive to ensure we offer you the coverage you need at the best premium possible. What's important to you is essential to us, and we still want to protect you!

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