Why Is My Insurance Going Up?

It is a question a lot of people are asking right now, and with good reason. Insurance premiums for both home and auto insurance have been increasing this year, and it has a lot of people wondering why. While there are many factors in your premiums, here is an overview of what’s going on in the insurance industry.

Why Are Insurance Premiums Going Up?

Several factors are coming together to increase premiums, but one of the major ones is inflation. We have all felt the increased costs of goods this year, and some areas have been hit harder than others. According to the Consumer Price Index, groceries are up 13% year-over-year, while new and used vehicles are both up 9 and 7 percent respectively. Even electricity is up 15% from last year. How do these impact your insurance though?

Increased construction costs in the form of labor, materials, and the fuel needed to get those materials and workers on the job have all raised the price of building a house in the last year. As cost to rebuild rises, the insurance companies have been increasing the coverage amounts on homes so that if there is a total loss, the home is properly insured. If you have not checked your policy recently, you might be surprised to see that Coverage A, the amount of coverage for your home’s replacement cost, higher than expected.

It is important to remember that replacement cost and market value are not always the same thing, and also not the same as what you paid for your house or what your mortgage amount is.

How Do Insurance Companies Determine Replacement Cost?

They use a tool called a Replacement Cost Estimator. A replacement Cost Estimator takes into account a huge number of variables, including the number of bedrooms and bathrooms in your home, the square footage, the siding and roofing materials, the quality of finishes in your home, such as countertop surfaces and flooring, as well as the architectural style of your house and even things like porches and decks. By using their data on construction costs in your area, your insurance company comes up with an estimate for how much it would cost to rebuild your house.

The more detailed and accurate the information your insurance company has about your house, the more accurate that estimate is likely to be. If you have hardwood floors throughout your house but the insurer thinks you have carpet, the estimate is probably too low. Or, if the estimate is using something expensive like marble or quartz for your counters, but your home has laminate countertops, the estimate might be too high.

Also, don’t forget about renovations, upgrades, and additions. If you upgraded your floors a couple of years ago but never told your insurance company, then your home could be underinsured. This is especially true of additions, since they increase the home’s square footage.

Replacement cost estimates are updated periodically to account for increases in building costs. With the major increases we have seen recently, this is one of the main drivers of premium increases.

Inflation is not the only reason for rate increases, however.

There Are Fewer Options Than Before For Coverage

In 2022 alone, we have seen eight insurance companies either completely pull out of the state of South Carolina, or go out of business altogether. In the majority of these cases, the reason was that these companies were not charging enough premium to remain profitable. To compete with some of the bigger brands, some smaller insurance carriers charge lower premiums which, while great for the consumer in the short term, led to them not having enough money on hand to continue to meet their obligations as they started experiencing more losses. This led to several companies going out of business, in some cases, leaving customers without adequate coverage.

On top of the companies that are going out of business or voluntarily leaving the market, other companies are reducing how much business they do in our state to limit their risk. Certain companies are not issuing any new policies in specific zip codes, either temporarily or indefinitely.

The end result, is that the market has become very hard. Just being able to get an offer of coverage is challenging in many cases, and shopping for the best price is much harder than it used to be.

Other States Have an Impact As Well

As crazy as it might sound, events that happen in Florida or California can have an impact on insurance rates in South Carolina. In Florida, natural disasters like Hurricanes have caused enormous losses for insurance companies, forcing some out of business. Some of those companies also were operating in other states, Like South Carolina, and as they go out of business, the market becomes less competitive. Meanwhile, in California, the State Department of Insurance has not approved rate increases in over two years, forcing insurers to operate at a loss in the most populous state in the country.

As those companies look for ways to compensate for the losses they are taking in California, with no rate increase approvals in sight, they are raising the rates in other states to make up for the difference. This passes on the increased cost to consumers everywhere else.

What’s Coming Next?

As an independent insurance agency that has been serving our state for over 40 years, we have seen ups and downs in the market before, which is why we offer policies from many different companies, to give our clients the best choices available for their unique needs. Unfortunately, no one can predict with any certainty what will happen next in the insurance market, but it is likely we will see rates continue to creep upward to keep pace with inflation. Our priority, and our commitment to our clients, is to continue to offer coverage from reputable, established insurance companies that we are confident can weather the storms of market conditions, and be there with reliable coverage when there is a claim.