Why Auto and Home Insurance Have Been Skyrocketing?

If you feel like your auto or home insurance has gotten way more expensive lately, you’re not imagining it. In Washington and across the country, insurance costs have jumped much faster than anything we were used to in the past. While increases have varied significantly by insurance company, I can comfortably say that most of our customers have seen their Home and Auto Insurance premiums increase by at least 30-40% over the past couple of years.

So what the heck is going on?

Here are some quick statistics from Washington alone:

• Auto accident claims jumped from around $3–3.5 billion (2018–2020) to $5.4 billion in 2023.
• Home insurance claims nearly doubled, from $941 million in 2018 to almost $2 billion in 2023.

Those are big numbers- but what is driving them?

Here are some of the key culprits:

Vehicle complexity, parts shortages, and repair inflation

Modern cars are more expensive to repair than they used to be. Advanced driver-assist systems, sensors, aluminum and composite bodywork, and software calibrations mean even “minor” collisions can trigger high parts and labor bills. That complexity, paired with parts shortages and a constrained skilled-labor pool, pushed vehicle repair costs well above general inflation in recent years. Studies found auto repair inflation in the double digits during 2022–2023, and repair bills have remained elevated through 2024. These higher repair costs translate directly into larger claims payouts and, therefore, higher premiums for policyholders.

More frequent and costly weather events

While we are certainly fortunate to live in the Pacific Northwest’s temperate and relatively benign climate, we have seen an increase in wildfire and wind events that have caused significant damage over the past few years. Last year’s “bomb cyclone” was an example of a windstorm that was certainly out of the ordinary and is expected to exceed $300 million in losses. Insurance companies are now taking these types of losses into consideration when determining future home insurance rates.

Increased reinsurance costs

Reinsurance is what insurance companies buy to protect themselves in the event of high payout natural disaster claims, such as hurricanes and wildfires. As you can imagine, if you watch the news, insurance companies have had to rely on their reinsurance policies quite a bit across the nation over the past few years. This, in turn, drives their reinsurance cost up, and they pass that cost along to us as consumers.

Social Inflation

This is a relatively new term that refers to consumers’ increased use of personal injury attorneys to help them settle injury claims. It also incorporates a jury’s tendency to side with the consumer and award very high payout verdicts. This is a bit of a controversial topic because I fully appreciate the desire to get as large a settlement as possible out of the insurance company. Understand, though, that insurance companies will simply turn around and increase our insurance rates to compensate for these higher litigation payouts. If we all decide to utilize injury attorneys and they succeed in getting us 3-4 times higher settlements as they advertise, what do you think will happen to our insurance premiums in the future?

Regulatory constraints

Insurance company rates and conduct in Washington (and all states) are governed by the state Office of the Insurance Commissioner (OIC). When an insurance company feels it needs to make a rate or coverage adjustment, it must first get that adjustment approved by the OIC. In Washington, our OIC prides itself in providing excellent protection and advocacy for the citizens of our state against unfair or predatory practices by insurance companies, which in and of itself is a good thing.

However, this translates to some very slow turn times when it comes to approval of rate adjustments. The average turn time seems to be between 12 and 18 months currently. This means that insurance companies cannot react quickly when claims increase and must plan for what their rate will need to be in 12-18 months to return them to profitability. This leads to much more dramatic increases and much lower decreases once profitability is restored. I’ve actually had a couple of insurance carriers tell me that they are now to the point that they could lower rates 10-15%, but likely won’t because they are afraid that by the time their lower rates get approved, claims will have risen again, and then they will need to start the whole process over to increase rates.

The Good News

At this point, most insurance companies are feeling like they are back on track and close to being profitable again. That means that they should not need to take any more dramatic increases for the foreseeable future. Because claims volume remains at or near the 2023 high point, it is likely that rates will not go down anytime soon.

Stay tuned because next month I will talk more about what you can do to help make your rates more affordable. In the meantime, please feel free to reach out with any questions or comments you may have. Our office line is 253-987-5791, and my direct email is Ryan@pnwinsurancegroup.com.