Homeowners insurance costs in the US have been on the rise since COVID, largely due to increased losses from natural catastrophes and persistent inflation, according to the Insurance Information Institute (Triple-I).
Despite more frequent and intense extreme weather events in recent years, many Americans are moving to regions like the Southeast and Southwest, which face heightened risks of climate-related disasters.
Sean Kevelighan, CEO of Triple-I, explained that the rise in insurance costs is primarily due to increased expenses associated with rebuilding after natural disasters: “Much like Americans are experiencing higher prices for virtually all material goods, a key driver for homeowners insurance has been around the likes of construction materials, which are an important element used when insurers help customers rebuild after catastrophe strikes.
“According to Triple-I’s own economic analysis, cumulative replacement costs related to homeowners insurance soared 55% between 2020 and 2022.”
Kevelighan added, “Another unfortunate factor proliferating the rising costs of insurance is legal system abuse, which basically entails billboard attorneys swaying Americans toward litigation as a first step, rather than one of last resort.”
He continued, “This unfortunate phenomenon is a problem that needs more attention and fixing. For example, one element, which involves third parties funding litigation for profit has virtually zero transparency. Third-party litigation funding has become a multibillion-dollar global asset class of dark money, in which the likes of foreign governments can even invest and profit from the U.S. legal system. Beyond being a potential national security threat, these sovereign funds usually do not pay taxes on these investments.”
Triple-I emphasised that even before the pandemic, homeowners insurers struggled with profitability as premium rates failed to keep up with rising costs. The industry’s net combined ratio of 110.9 in 2023 was its worst underwriting result since 2011.
Looking ahead, the potential for the US Federal Reserve to lower interest rates in response to moderating inflation could boost new home sales and homeowners insurance growth. While higher interest rates benefit insurers’ investment income, they must be balanced to control inflation and stabilise costs for goods and services, Triple-I noted.
Kevelighan concluded, “Insurers play a vital role in the economy, protecting against financial losses due to unforeseen events such as natural disasters.
“However, if insurance companies were to become unprofitable and unable to meet their financial obligations, it leaves policyholders without coverage when they need it most.”
