Why are insurance rates going up across the industry?

You’ve seen prices rise for everything from eggs to frying pans, but why are your insurance rates increasing too? Inflation, rising construction costs, “nuclear” jury verdicts, increased natural disasters, and more are driving up prices of home, auto, and business insurance policies as well—and, in some cases, causing insurance companies to reduce or even drop coverage.

Why are insurance rates rising?

An insurance company uses data from its experience to set prices to cover the cost of future claims. When market forces drive up the frequency and cost of claims, insurers lose money on existing policies. Insurance companies need to increase rates in response to ensure they have enough funds to pay future claims and the financial strength to write new policies.

Acuity prides itself on being a trusted partner for our customers over the long term. We are adjusting pricing to account for market forces driving up costs and feel it’s important for our customers to know why insurance rates are increasing.

Unprecedented storm activity

Natural disasters increased from $41 billion in 2019 to over $100 billion in both 2021 and 2022. Unfortunately, storm claims remained elevated in 2023, which was the fourth consecutive year in which 18 or more separate billion-dollar natural disasters affected the U.S. according to NOAA. 

Rising commercial and home reconstruction costs

Increased construction costs of commercial and residential properties have driven up claim costs throughout the industry. Although the rate of increase for the cost of construction materials has begun to slow, the CBRE Construction Cost Index is still higher than the 10-year average. Additionally, the CBRE reports that finding skilled labor continues to be a challenge for all aspects of construction, adding to the cost of labor and construction times.

More driving leading to increased claim activity.

During the pandemic, people were traveling less and driving fewer miles, which allowed Acuity to provide customers with premium relief. However, miles driven have climbed in recent years, and U.S. drivers logged over 3.2 trillion miles over the previous 12 months according to U.S. Federal Highway Administration data. With more driving activity comes more accidents. 

Rising prices of new and used cars, car repairs, & car rentals

Although overall inflation has lessened, vehicle repair costs continue to soar, with a 17% year over year increase reported by the U.S. Bureau of Labor Statistics. Vehicle costs continue their upward climb as well: The average cost of a new car is over $48,000, up nearly $6,000 from two years ago. 

“Nuclear” verdicts

Nuclear verdicts—the term for jury awards of $10 million or more—are impacting the insurance industry—especially trucking. These verdicts, which can be traced back to social inflation, award high amounts that surpass a reasonable or rational amount for the actual damages caused.

The shifting marketplace

Other carriers are restricting coverages or pulling out of classes of business. Some have experienced downgrades to their financial ratings due to poor financial performance. In contrast, Acuity remains stable throughout this marketplace adjustment and is positioned well for the future. We remain rated A+ for financial stability by Standard & Poor’s and A.M. Best. Also, as a mutual insurance company, we are able to do what is best for our customers since we don’t have stockholders to please.

As we look to the future, it’s important to keep in mind that even as the above factors stabilize, it will take time for insurance rates to catch up. Generally, it takes more than a year, because a 12-month policy purchased today will cover claims for another 364 days.

Acuity is committed to protecting our customers with the coverages they need while consistently delivering on our promise. That’s why 96% of our customers report a positive claims experience.