We’ve had a lot of people reach out to us recently to ask, “Why has my insurance gone up if I haven’t had a claim in years?”

We understand that rising insurance premiums can be frustrating, especially when you haven't filed any claims in a long time—if ever. Well, we hear you, and that’s why we want to shed some light on why insurance rates are on the rise.

According to data provided by Bankrate, the average annual premium for a full-coverage car insurance policy in 2023 was $2,014. This year? That very same policy will cost you $2,545—an increase of 26 percent!

While we wish we could control these rates, it's important to be transparent about what’s causing the insurance premium increase in 2024. So, let's explore the real facts impacting these figures.

How insurance works (in a nutshell)

Before we dive into the reasons why insurance premiums are going up, it’s important to have a high-level understanding of how insurance works.

Insurance operates much like a pool system, where your premiums are pooled together with others’ contributions. This hypothetical pool serves as a reserve from which the insurance carrier draws to pay for claims made by policyholders. The specific amount each person contributes to the pool (the ‘rate’) is determined by a wide range of factors, such as your claims history, the property being insured, where you live, etc.

Some rate increases are specific to individual policyholders and are influenced by unique rating factors. For example, car insurance companies often consider your ZIP code as a rating factor in many states. If you move from a rural town to a big city, your rate may increase because statistics show that urban areas have a higher likelihood of car accidents and higher auto theft rates. Thus, your company may raise your premiums to account for the greater risk associated with your new address.

On the other hand, there are general rate increases that affect all policyholders within a region, state, or even the entire country, regardless of any changes in individual policies or habits. These general increases are necessary when an insurance company realizes that its pool does not have sufficient funds to cover projected claims. To replenish the claims reserve, the company implements these broader rate increases.

Why are insurance rates so high in 2024?

An oversimplified way to think of the Insurance Pool is:

Number of Claims x Average Claim Amount = Size of the Insurance Pool

If there are only a few claims, then you don’t need much money in the pool. However, if there are a lot of expensive claims, then you need a bigger pool to pay out those claims.

What we’ve been seeing the past few years is an (unfortunate) perfect storm:

More Claims x Increased Claim Amounts = The Need for a Very Large Insurance Pool

So, while you may not have had any claims, it's the general rate increases that are the key factors impacting insurance premium increases nationwide. But what, exactly, is causing these general rate increases?

Our insurance experts have identified the six biggest culprits, which we will break down below.

1. A Rise in Natural Disasters

You may have noticed that the past couple of years have seen a notable increase in the frequency and severity of natural disasters.

According to data from the National Centers for Environmental Information (NCEI), there were 28 confirmed natural disasters in the United States in 2023 which have resulted in damages exceeding $1 billion per occurrence. To put that number into perspective, the annual average from 1980 to 2023 is 8.5 disasters—and that's adjusted for inflation.

Disaster map courtesy of the U.S. Department of Commerce and the National Oceanic and Atmospheric Administration (NOAA).

Flooding, earthquakes, tropical cyclones, and other severe storms can all lead to massive property damage, resulting in higher claims payouts. In other words, these weather events cause the proverbial pool to drain a lot faster. As insurance companies shoulder these higher costs, they need to replenish the pool . . . which can inevitably impact you.

So the next time you’re watching TV in Minnesota and you hear about wildfires in California, well, the broader insurance pool has just sprung a leak and it could likely impact insurance premiums across the country (as frustrating as that can be).

While we’re on the subject, if you live in an area where certain types of damage are common—such as flooding and earthquakes—you should consider purchasing additional coverage for better protection. Here’s a list of which natural disasters are typically covered by a standard homeowner’s policy—and which ones you may be at risk for.

2. Economic Inflation

Inflation remains one of the most significant challenges the U.S. is grappling with in the post-pandemic era, and its effects extend far beyond everyday expenses like groceries and utilities.

According to data from the U.S. Bureau of Labor Statistics, the Consumer Price Index (CPI) increased by 3.4% for all items in 2023. And that’s coming off the heels of a 6.5% CPI increase in 2022. But by far the category that was hit the hardest was motor vehicle insurance, which saw a CPI increase of 20.3% in 2023!

Why are your vehicle insurance premiums affected more than anything else? This rising inflation impacts the cost of everything from car parts to labor, which naturally leads to higher repair costs.

So not only are the natural disasters draining our pool faster, but the cost of those repairs has also increased significantly, resulting in a one-two punch to our insurance pool. As a result, insurance companies need to adjust their rates to accommodate these increased expenses.

3. A Shift in Societal Attitudes

Consumer goods and services aren’t the only things on the rise. The average size of claim settlements has continued to climb, and this is not merely a byproduct of the supply and demand imbalance of economic inflation, either. But rather, it can also be attributed to a phenomenon known as social inflation.

Broadly speaking, social inflation encompasses the overall perception of the general public towards large corporations, which includes most insurance companies. This collective attitude is subject to change over time, but currently, social inflation is especially high.

Factors that can be attributed to social inflation may include higher jury awards, a changing attitude toward lawsuits, increased litigation, and elevated legal costs. These elements lead to heightened claim settlement amounts and, in turn, put additional financial pressure on insurance companies, leading to potential rate increases for policyholders.

While measuring social inflation can be difficult, a 2022 study by insurance consulting firm Conning revealed that social inflation could be responsible for approximately $21 billion, or 14%, of commercial auto losses from 2010 to 2019.

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4. Fluctuations in Claim Frequency

Despite reduced traffic levels during the height of the pandemic, a disturbing trend emerged on America's empty roads—an increase in risky driving behavior.

According to a comprehensive study conducted by the National Highway Traffic Safety Administration (NHTSA), 2020 had the most fatal traffic accidents since 2007. Moreover, speeding-related crashes surged by 11%, while alcohol-related crashes increased by 9% during the same year.

Fortunately, this worrying pattern is showing some signs of improvement. NHTSA figures from the first nine months of 2023 estimate a 4.5% decrease in car accident fatalities, compared to the same period in 2022. So even though you may not have filed any claims during that period, the overall claims frequency and severity across the insurance industry have likely affected your premium.

5. Labor Shortage

While the employment market has taken great strides toward recovery in recent months, the ongoing labor shortage in various industries has impacted repair and service costs.

According to the National Federation of Independent Business’s January 2024 Jobs Report, 40% of all small business owners reported job openings they couldn’t fill. Of those, 89% said they had only a few or no qualified applicants at all.

The scarcity of skilled workers increases labor expenses across the board, leading to higher costs for repairing damage to both vehicles and properties. As a result, insurance companies face higher costs for settling claims, which in turn get reflected in your premium.

When will insurance premiums go back down?

At Christensen Group, we completely understand your concern about insurance rate increases, and we want to provide you with an honest answer—even if it might not be what you want to hear. The reality is that no one can accurately predict when, or if, insurance rates will go back down.

There may be some relief on the horizon, but insurance rates don’t change overnight. While we can't guarantee a specific outcome, most insurance experts agree that the best we can hope for right now is a more moderate pace in premium increases.

In light of this, we recommend that you budget for potential insurance premium increases—however slight—at least for the foreseeable future.

Navigate the evolving insurance landscape with Christensen Group

Our team is dedicated to providing you with transparent insurance information, answering any questions you may have, and exploring all options to ensure you have the best coverage possible at the most competitive rates.

While we can't control natural disasters or economic factors, we remain committed to offering you reliable coverage and exceptional service. If you have any questions or need assistance with your policy, please don't hesitate to reach out. Your peace of mind is our top priority.