As a Texas homeowner, you may have noticed a significant increase in your insurance costs lately. You're not alone in wondering why insurance rates are increasing at a wild pace. In this blog post, we'll break down the four main reasons behind the chaos in the property and casualty insurance business in the United States, which caused Texas premiums to rise dramatically in the last 18 months compared to the national average.
Reason 1: Increased Claim Frequency
One of the primary factors contributing to rising insurance premiums is the growing number of claims being filed. Whether it's the increasing frequency of hailstorms, hurricanes, blizzards, or the higher number of auto accidents, insurers are paying out more frequently. This phenomenon is happening with both auto insurance rates and homeowners insurance rates as there are more storms and accidents in Texas than ever before. Even though you may have avoided the hail or have a clean driving record, to cover this increase in claim payouts and replenish their funds, insurance companies have no choice but to increase rates.
Reason 2: Rising Claim Costs
Not only are claim frequencies on the rise, but the costs associated with these claims have also increased. Texans have watched the inflationary push on the average cost of everything rise dramatically. For insurance carriers, the appreciation of vehicle prices and rising construction costs for homes and home repairs, have contributed to the overall cost of insurance claims to increase even more. Unfortunately, insurance companies did not anticipate these higher costs when pricing their policies for state rate filings, leading them to pass the burden onto policyholders through increased premiums.
When you take the increased claim activity and couple it with the increased claim costs, it is easy to see understand why the average rate increases have come from all insurance providers around the state. But the pressure on annual premiums doesn't stop there.
Reason 3: Impact of Reinsurance
Reinsurance is an insurance term that you've not likely not ever thought about. However, it plays a vital role in the insurance industry. It refers to the insurance that large insurance companies purchase to cover the claims made on policies they sell to individual Texans like you and I. In an attempt to mitigate their risk to large losses, the major insurance companies transfer a portion of their liability to the financial markets by purchasing reinsurance. Unfortunately, the recent chaos in the financial markets has caused the price of reinsurance to skyrocket quickly over the last three years. As a result, insurance companies pass this increased cost onto policyholders pushing the average cost of an insurance policy ever higher in an attempt to recover this hidden cost to most consumers.
Reason 4: Rising Interest Rates
The final piece to this puzzle is something that has been in the news, but not necessarily a reason that you may have thought of. We all know that interest rates have been on the rise, affecting various aspects of the economy. Insurance companies have to hold cash reserves to pay future claims, which they invest in safe instruments to generate income. Safe, corporate bonds are typically their instrument of choice as they are very predictable. As interest rates increase, the value of those bonds held by insurance companies decreases. When insurers need to sell these bonds for cash to cover large claims from catastrophic events, they have had to do so at a loss. This has further impacted their financial stability and caused the average premium to increase. Unfortunately, policyholders bear the brunt of these losses through higher insurance prices.
Now that we understand the reasons behind the rate chaos in insurance premiums, let's explore some strategies for dealing with these increases.
Dealing with Rate Increases
If you're faced with a substantial rate increase, it's essential to know that you're not alone in this situation. Many homeowners in Texas are experiencing similar challenges. However, there are steps you can take to navigate through these changes.
Understanding Tightened Underwriting Restrictions
Insurance companies have become more stringent in their underwriting practices which is making it tougher to get a new policy. They are placing stricter restrictions on policies and may require more evidence when assessing claims. For example, if you previously received a cash payment for a roof repair without replacing it, a new insurance company may not offer coverage unless you provide proof of the repair. It's important to be aware of these tighter restrictions and ensure compliance to avoid complications when seeking new policies. Working with an independent insurance agent can help you secure additional options as you navigate this complicated maze looking for a new insurance policy.
Seeking Support and Assistance
Navigating through the complexities of insurance can be overwhelming, especially during times of rate increases and policy changes. At Insurance for Texans, we want to offer our support and assistance. Our team is here to help you understand these changes and find the best possible solutions for your insurance needs. Don't hesitate to reach out to us if you have any questions or concerns.
While homeowners insurance rates may be increasing, it's crucial to ensure that you're receiving proper value for your policy. When you invest in insurance, you should have peace of mind knowing that your coverage adequately protects you. Whether it's replacing a damaged roof after a storm or understanding your insurance coverage for water. Our agents are here to look at your individual factors and help you find the right solution for your insurance needs. Click the button below to start the conversation with us today.