Navigating the Rising Tide of Insurance Costs: Insights and Strategies

Understanding the Impact of Inflation on Insurance Premiums

Insurance premiums are directly tied to the risks they cover. As claims increase and the cost of settling these claims rises, insurers are forced to raise premiums to maintain profitability. The combined ratio, a key metric for insurers, is calculated as the sum of losses and expenses divided by earned premiums plus operating expenses divided by written premiums. A ratio above 100 indicates an underwriting loss, necessitating higher premiums to balance the books.

The Struggles of Auto Insurance in the Face of Economic Pressures

Auto insurance, both commercial and personal, has been particularly hard hit. Commercial auto insurance has seen a net combined ratio over 100 in nine out of ten years between 2014 and 2023, and this trend is expected to continue. Personal auto insurance has also struggled, with a net combined ratio over 100 for the past three years, culminating in a 14.3 percent growth in net written premiums in 2023, the highest in over 15 years. Economic and social inflation has added between $118.9 billion and $137.2 billion to auto liability losses and defense and cost containment expenses from 2014 through 2023.

Strategies for Consumers and Insurers Alike

For consumers, understanding the factors driving these increases can help in making informed decisions about coverage and shopping around for better rates. For insurers, staying ahead of inflation trends and accurately pricing policies is crucial. The study by Triple-I and Milliman highlights the need for continuous monitoring and adaptation in the face of economic changes. As severity of claims continues to rise, both consumers and insurers must be prepared to navigate these challenges.