Nairobi The chair of the Federal Reserve is sending signals everywhere that they will soon be lowering the interest rate because progress is being made on inflation. One place where that is decidedly not true is in consumer experiences with insurance, whether home, flood, or vehicle. Without seeing much help coming from state regulators, people are taking more risk on themselves or going naked in many cases, simply because they can’t afford the bills.
Reports indicate that part of the problem in some states is that regulators are going in the tank for insurance company lobbyists. “State regulators across the U.S. appear to be buckling to industry demands for higher home insurance rates for fear that insurers will pack up and exit their regions, leaving residents with few coverage options.” In the last 12 months alone, one state has decided its regulator can no longer veto rate requests and another has made it easier for insurers to reduce storm coverage. A third has agreed to expand the types of costs companies can take into account when setting rates. The conclusion is that higher insurance premiums are being charged in states where regulators apply less scrutiny to requests for rate increases, compared with states where officials question the justifications offered by companies. Companies have won an average of 20% increases over the last year.
For those homeowners with fixed incomes and no mortgage requirement that mandatory bundles the insurance payment in the monthly payment, these double-digit increases that can add up to additional thousands of dollars per year offer terrible choices. Cutting coverage is often not an option, because some insurances are refusing to cover the homes unless they raise the level closer to full market value. Raising the deductibles is sometimes an option, but that increases risks to owners. Too many homeowners are simply going without coverage and hoping for the best, essentially betting the farm against the weather and whatever may come. A friend on the West Coast who has never had a home insurance issue, when threatened with loss of insurance because of potential California fire risks in the Bay Area cut trees and made roof repairs and took other steps demanded by the insurer he had for more than 20 years, and they still denied his coverage. And, that’s California, which is often tougher on insurers!
Vehicle coverage is also in chaos. The Journal reports that “Half of U.S. auto-insurance customers have actively shopped for a new policy in the past year, up from 41% in 2021, according to research firm J.D. Power. In addition to calling around and potentially switching their insurers, more drivers are also changing the policies themselves.” Furthermore, “In the past year, the average annual cost of full-coverage car insurance was up 12% to $2,278, according to Bankrate. This was in addition to a 7% increase a year before.” Once again, drivers are raising deductibles, declining special items, and in many states going to the millions who are uninsured.
State and federal governments are looking at these issues and have stepped in as “last resort” options for property, though not for auto insurance, but the soaring rates demand a lot more action by regulators and governments. The private insurance system seems to have hit a ceiling where it just doesn’t work for people anymore.