As of August 30th, 2024, we’re in what the insurance industry refers to as a “hard market”—a period when insurance rates are rising sharply, coverage is tightening, and many consumers are feeling the pinch. If your recent insurance renewal gave you sticker shock, you’re not alone.

Many buyers—homeowners, drivers, and business owners alike—are asking, “Why are my premiums increasing so drastically?” This article aims to explain what’s going on in the industry, why insurance is getting more expensive, and what you can do to navigate the current environment.

• A Quick Recap: What Is a “Hard Market”?

The insurance market cycles between “soft” and “hard” phases. In a soft market, insurance is more affordable, underwriting is looser, and competition is high. Carriers are willing to take on more risk to grow their books of business.

A hard market is the opposite. Carriers become more conservative. They raise premiums, pull out of certain regions or industries, reduce coverage options, and tighten underwriting standards. This isn’t done out of greed—it’s about maintaining financial solvency in the face of rising losses.

We are firmly in a hard market right now.

• How Did We Get Here?

• 1. COVID-Era Regulation Bottlenecks

In 2020, as the COVID-19 pandemic disrupted daily life, California Insurance Commissioner Ricardo Lara ordered insurance companies to refund a portion of premiums—especially for auto and commercial policies—because fewer people were driving or operating their businesses.

At the same time, the Department of Insurance put a pause on approving rate increases. Carriers continued to incur losses, especially in areas like wildfire-prone homeowners insurance and commercial liability lines, but were unable to adjust their pricing to reflect the new risk environment.

Over the next few years, as inflation, supply chain issues, litigation costs, and climate events increased claim severity, carriers were stuck waiting. As of late 2023 and into 2024, some of these rate increases are finally being approved—but now they’re coming all at once to make up for years of stagnation. The result? A wave of significant premium hikes across nearly every line of insurance.

• 2. Inflation and the Rising Cost of Claims

Another major factor driving rates is inflation. The cost to repair a car, rebuild a home, or pay for medical treatment after an injury has surged. Parts, materials, and labor are all more expensive than they were just a few years ago.

• Auto Insurance: Car repair costs have skyrocketed due to global supply chain issues and the increasing complexity of modern vehicles. Even a minor fender-bender can now require thousands of dollars in parts and recalibration of sensors or electronics.

• Home Insurance: Construction costs are up more than 30% since 2020. Materials like lumber, roofing, and copper have surged in price, and contractors are harder to find. Rebuilding a home after a fire or flood now costs significantly more than it did just a few years ago.

• Commercial Insurance: Businesses are seeing rate hikes due to inflation in property values, general liability exposures, workers’ compensation claims, and increased litigation frequency and severity.

• 3. Climate Change and Catastrophic Losses

Wildfires, hurricanes, floods, and other catastrophic weather events are becoming more frequent and more severe. Insurers are paying out more in claims than they had historically modeled, especially in high-risk areas like California, Florida, and parts of the Gulf Coast.

Reinsurance—insurance that insurance companies buy to protect themselves—has also become more expensive. When reinsurance costs rise, primary insurers pass those costs on to consumers.

Some carriers have chosen to pull out of high-risk states altogether. Others have limited their appetite or increased deductibles, further tightening the market. This means fewer choices for buyers and more pressure on the companies that remain.

• 4. Litigation and “Social Inflation”

A lesser-known but growing driver of rate increases is something called “social inflation.” This refers to the rising cost of claims due to increased litigation, larger jury awards, and more frequent lawsuits. For example:

• In auto accidents, juries are awarding multi-million-dollar settlements even for moderate injuries.

• In property and liability cases, legal fees and settlement expectations have risen dramatically.

This pressure affects not just liability insurance but also umbrella and excess policies, which are seeing some of the steepest increases.

• What Does This Mean for You?

If you’re seeing higher insurance premiums, it’s likely due to a combination of the factors above. Even if you haven’t had a claim, your rates can still go up based on regional losses, market trends, and your carrier’s overall portfolio performance.

Here’s what you can do:

• ✅ Work with an Independent Agent

Independent agents can shop your policy across multiple carriers. In a hard market, this flexibility is more valuable than ever. If one carrier exits your market or raises rates steeply, your agent can explore alternatives.

• ✅ Review and Update Your Coverage

Make sure your coverage still fits your needs. Sometimes increasing deductibles, bundling policies, or adjusting coverage types can help reduce costs without exposing you to unnecessary risk.

• ✅ Don’t Cancel Without a Plan

Going without insurance may save you money in the short term, but it can expose you to catastrophic financial risk and make it harder to get coverage in the future. Always consult your agent before making big changes.

• ✅ Practice Risk Management

For businesses and homeowners, proactive risk mitigation—like installing security systems, updating roofs, maintaining properties, or implementing safety protocols—can help control costs and make your risk profile more attractive to insurers.

• The Road Ahead

There is no quick fix to the current insurance crisis. Rates are expected to remain elevated through the rest of 2024 and likely into 2025. However, hard markets don’t last forever. As carriers regain profitability, competition will slowly return, and rate increases will begin to stabilize.

In the meantime, the best thing you can do is stay informed, work with a trusted insurance advisor, and make proactive choices about your coverage.

Insurance is still about protecting what matters most. And while it may cost more right now, that protection is more important than ever.

Let us know if you’d like a personalized review of your coverage or help navigating the current market. We’re here to help.