It was not that long ago that obtaining personal insurance was a relatively straightforward process. In most areas of the country homeowners and drivers could easily secure affordable policies with comprehensive coverage from a variety of insurers. Shopping for insurance often meant comparing a few quotes and choosing the best option without much hassle. The market was competitive, and policyholders benefited from reasonable premiums and broad coverage.
Fast forward to today and the landscape has dramatically shifted. The personal lines insurance market, in a hard market cycle for several years now, is facing even more significant and severe challenges in almost every region of the country. Factors such as on-going catastrophic weather events like the recent multiple convective storms in the Midwest U.S., high repair costs, stubborn inflation impacting building material and auto parts, excessive litigation coupled with social inflation, reinsurance costs and restrictions, as well as the prevailing hard market, all are contributing to a more complex and costly environment for policyholders. Below we break down those issues, how they are impacting insureds, and how insurance carriers are reacting.
Policyholders are increasingly facing higher premiums and deductibles due to the rising frequency and severity of weather events. According to the National Oceanic and Atmospheric Administration, 2023 saw a record 28 $1 billion catastrophic losses in a single year. 2024 is on track to be just as bad as well as predicted to deliver a higher that usual number of hurricanes. Tornados, severe thunderstorms, hail, floods and other damaging events have led to a surge in claims, which in turn have driven up the cost and the availability of home insurance. These types of weather events are not only happening in traditional high-risk areas like Florida and other coastal communities, but also in other regions and states that once were considered low risk and safe. Now homeowners are finding it increasingly difficult to obtain affordable coverage and many more face policy cancellations.
The cost of repairing or rebuilding homes continue to noticeably increase due to lingering inflation and supply chain disruptions, leading to higher insurance claim payouts. As repair costs exceed policy limits more frequently, homeowners may have to cover additional expenses out of pocket. This financial strain can be significant, particularly for those without sufficient savings.
The personal lines property insurance market is in a multi-year hard market which is characterized by higher premiums, stricter underwriting standards, and reduced capacity. The factors that drive a hard market are many with a significant driver being reinsurance. Specifically, insurance companies are paying more to cede a portion of their risks to reinsurers compared to prior years. Reinsurers have also tightened underwriting and limited their desire for certain risks. The issues surrounding reinsurance get passed down to the policyholder, so they are facing much higher costs for their insurance needs, more stringent requirements to obtain coverage, and potentially fewer options as insurers withdraw from both traditional and emerging high-risk markets.
In response to these challenges, insurers are increasing premiums, imposing higher deductibles, excluding or limited coverage for perils such as wind or hail and canceling policies in what they now consider high-risk areas which are more and more places across the country. This means that homeowners may face higher costs for less coverage, and some may struggle to find new insurance providers willing to cover their homes.
The cost of vehicle repairs has risen sharply due to the increasing complexity of modern vehicles and inflation. Policyholders are experiencing higher premiums as insurers pass on these increased costs. Additionally, more complex and expensive repairs can lead to longer repair times and higher out-of-pocket expenses for policyholders.
Reckless driving, distracted driving, and driving under the influence alcohol and of legalized recreational drugs have led to a higher frequency of accidents and claims. This results in increased premiums for all policyholders, not just those directly involved in accidents. Safe drivers may feel the financial impact of higher premiums due to the overall increase in claims.
In some states, regulatory constraints prevent insurers from obtaining the rate increases needed to cover rising costs. This has been exasperated with rate increases being artificially suppressed during the pandemic and the subsequent backlog of rate file approvals from the state departments of insurance. While this may seem beneficial to policyholders in the short term, it can lead to insurers exiting those markets, reducing competition and availability of coverage. Policyholders may find it harder to secure auto insurance as a result as there are less companies offering policies in those states.
Auto insurers are responding to these pressures by raising rates where possible and tightening underwriting criteria. They are also pulling out of states unwilling to allow them to get the rates they need or severely curtailing who they will insure. This means that some policyholders may face higher costs or difficulty obtaining coverage, especially those with less favorable driving records.
The rising costs of litigation, litigation funded as an “investment” and the prevalence of “nuclear verdicts” have driven up the cost of umbrella liability insurance. Policyholders seeking additional protection may find it more expensive to obtain sufficient coverage. In some cases, insurers may impose stricter underwriting standards, making it harder for certain individuals to qualify for umbrella policies.
Social inflation, characterized by increased litigation and higher jury awards, has led to higher liability claim costs. This trend affects the affordability and availability of umbrella liability insurance, as insurers adjust premiums and coverage limits to manage their risks.
Insurers offering umbrella policies are increasing premiums and implementing stricter underwriting standards. Policyholders may need to pay more for coverage and may face more stringent qualification criteria.
The current personal lines insurance market in the United States is navigating a complex and challenging landscape, significantly impacting policyholders. Homeowners and drivers are facing rising premiums, higher out-of-pocket expenses and reduced availability of coverage due to restrictions, severe weather events, high repair costs, inflation, poor driving, excessive litigation, and social inflation. The ongoing hard market has further exacerbated these issues with reinsurance being a significant factor in hardening the market and making it more difficult and costly for individuals to secure adequate insurance protection.
By understanding the current challenges and taking proactive measures, including working with a personal insurance and risk advisor like WTW, one can better navigate the evolving landscape of the personal lines insurance market.
Willis Towers Watson hopes you found the general information provided in this publication informative and helpful. The information contained herein is not intended to constitute legal or other professional advice and should not be relied upon in lieu of consultation with your own legal advisors. In the event you would like more information regarding your insurance coverage, please do not hesitate to reach out to us. In North America, Willis Towers Watson offers insurance products through licensed subsidiaries of Willis North America Inc., including Willis Towers Watson Northeast Inc. (in the United States) and Willis Canada, Inc.
