We all know that Americans are struggling with high grocery prices and hotel prices and car prices and housing prices, but you don’t hear as much about the surge in insurance premiums. Prices for auto, life, health, and homeowners insurance have all increased dramatically. This post may not be glamorous, but I think these rising costs should be a warning to everyone. If you can’t afford insurance, you will OWN NOTHING, and be happy? Insurance is a big part of owning private property. And owning private property has always been an important part of ensuring a strong nation based on freedom and democracy.

Inflation and higher car prices causes auto insurance premiums to rise. The cost of repairs or replacement of wrecked vehicle has skyrocketed due to wage increases for (some) mechanics and the cost of parts and vehicle prices. It’s a vicious cycle. While some people did get cost of living raises after the Covid stimulus caused rampant inflation, many did not. Those of us who did not get wage increases are being priced out of the market for something we are required to buy.

I will use myself as an example, so forgive me for revealing some personal financial information. I realized that our insurance bills combined each month are now almost as much as my grocery budget, but not quite because that expense has gone up so much. And there’s not much I can do about it. I’m already getting the cheapest insurance I could find in every case.

We currently pay Progressive $300 a month for four old, paid-for vehicles and this was the best deal I could find. We need to cover four vehicles because we have a handicapped van, my car, and my husband’s commuter car and work truck, in case you’re wondering. Our auto policy is for the lowest legal amount of liability and personal injury protection coverage only. I can’t even imagine what people are paying for full coverage on new vehicles! Actually I can, it’s almost as much as a car payment by itself used to be.

The World Economic Forum thinks it would be a great idea for fewer people to own cars. https://www.weforum.org/agenda/2016/12/goodbye-car-ownership-hello-clean-air-this-is-the-future-of-transport/

Example of Costs to Own a Newer Vehicle

According to ChatGpt, The average* cost of owning a 2023 car, including both the car note and insurance, is approximately $873 per month. *This figure can vary widely depending on location, vehicle choice, credit score, and other factors, but it provides a general sense of the financial commitment required for a new car in 2023. For drivers under 25, the average monthly cost to own a 2024 car, including both the car note and insurance could be much higher, ranging from $1,030 to $1,165 per month. This reflects the higher insurance premiums and potentially higher interest rates young drivers face, making it significantly more expensive than for older, more experienced drivers. When you consider that the average* monthly income for a young person with no degree working full-time is around $2500-3000 a month (*depending on the state and city) and rent is about $1000 a month, you can see the problem.

As for life insurance, when you have a mortgage and a disabled child, you need it. While the premiums rise as you get older, for us it’s not an optional expense. Thankfully we did qualify for a 10 year locked in rate with Fidelity to replace our previous Farmers 20 year policy which expired causing the premiums to rise annually. But it was not easy getting this policy. For you younger readers, I urged you to buy and lock in a rate before you get too old. We now pay $197 a month for life insurance.

Then there’s health insurance. My husband is self employed so we get ours through the Marketplace and yes we get a substantial subsidy, but we still pay over $400 a month of the premium ourselves. This is a high deductible plan and we pay for most of our prescriptions with GoodRx.

Lastly we have homeowners insurance. Since we have a mobile home our options are limited to a few companies. When the premiums jumped way up I did a lot of shopping and ended up staying with the company we’ve had for twenty years, Hochheim. Our premium increased from $1600 to $2100. This was right after our property taxes were cut because of a state surplus. So the money we saved on taxes went to insurance. That was very disappointing.

The Reason

Insurance companies say they had to raise premiums to cover the costs of claims because of inflation . They also blame worsening weather conditions and more storms. However other factors like population growth, urban development, higher property values, comprehensive insurance coverage, and inflation have also significantly contributed. In other words as more people depend upon insurance coverage to pay for damages to their homes, premiums will rise.

It’s the same for all the other types of insurance. As more people rely on insurance, costs will rise. And with the cost of replacing or repairing anything being so high, it’s pretty risky to not have insurance. I asked ChatGpt for some suggestions to reduce insurance costs and here it what I got.

“Here are some strategies to help people afford insurance in the face of rising costs, beyond just shopping around and raising their deductibles:

1. Bundling Insurance Policies:

• Encourage readers to bundle multiple insurance policies, such as home, auto, and life insurance, with the same provider. Most insurance companies offer discounts for bundling, which can significantly reduce overall premiums.

2. Improving Credit Scores:

• Since many insurance companies use credit scores to calculate premiums, improving a credit score can lead to lower insurance costs. Encouraging readers to manage their credit well—by paying bills on time, reducing debt, and checking their credit report regularly—could help them save on insurance.

3. Taking Advantage of Discounts:

• Many insurers offer discounts for things like installing safety devices (security systems for homes, anti-theft devices for cars) or having certain professional affiliations. Suggest that readers ask their insurer about any lesser-known discounts they might qualify for, such as multi-car discounts, low-mileage discounts, or even safe driver programs.

4. Reviewing Coverage Regularly:

• Recommend that readers periodically review their policies to ensure they’re not over-insured or paying for coverage they don’t need. For example, homeowners may have increased coverage limits as property values rise, but they may no longer need certain add-ons or riders.

5. Installing Safety Features:

• Homeowners can reduce premiums by installing storm-proof windows, better roofing, or updated electrical systems. For cars, installing advanced driver-assistance systems (ADAS), anti-theft devices, or dash cams can reduce auto premiums. These improvements may qualify them for insurance discounts and reduce the risk of claims.

6. Adjusting Coverage to Match Actual Needs:

• Encourage people to only carry the coverage they really need. For example, if they drive an older car, they might consider dropping comprehensive and collision coverage if the cost of the premiums exceeds the value of the car. Similarly, homeowners might adjust coverage limits based on a realistic assessment of their property’s value and the actual risks.

7. Increasing Preventive Measures:

• Preventive actions can reduce the likelihood of filing claims, which can help lower premiums over time. Regular maintenance of homes (such as clearing gutters to prevent water damage) and cars (routine checkups to avoid breakdowns) can help prevent major problems that lead to costly claims.

8. Choosing Usage-Based Insurance:

• For drivers, usage-based insurance (UBI) can offer significant savings for those who don’t drive much or are particularly safe drivers. These policies, which track driving habits via a mobile app or device, can lower premiums if driving patterns show low mileage or safe driving behaviors.

9. Reassessing Deductibles Over Time:

• While raising deductibles can lower premiums, you can also suggest that readers reevaluate their financial situation regularly. If they are able to comfortably cover higher deductibles down the line, they can consider adjusting them upward, which further lowers their premiums.

10. Joining Group or Association Insurance Plans:

• Some professional or alumni associations offer group insurance plans that can provide lower premiums. Encourage readers to check if they qualify for any such programs through their employer, professional organizations, or community groups.

11. Reducing Risk Factors:

• Minimizing risk can help keep insurance rates lower. This includes things like quitting smoking (which can lower both life and health insurance premiums), maintaining a safe driving record, and taking care of minor issues around the home (like fixing a leaky roof) to avoid larger claims.

12. Exploring Self-Insurance for Certain Types of Coverage:

• For people with significant emergency savings, self-insuring smaller risks (like minor car repairs or small home issues) by maintaining a high-deductible policy can be a cost-saving strategy. Readers could consider setting aside money to cover smaller potential losses, thereby avoiding lower-deductible policies that cost more in premiums.

13. Encouraging Local and Government Incentives:

• In some areas, governments offer programs to help homeowners install weather-resistant features or energy-efficient improvements, which can lower insurance premiums. Mention the possibility of local or state-level rebates and grants for certain home improvements, which can ultimately lower insurance costs.

14. Participating in Safe Driving Programs:

• Many auto insurers offer programs that track driving habits and reward drivers for safe driving behaviors. Readers could enroll in these programs, which could potentially save them 5-10% on premiums depending on their performance.

These are some practical and proactive strategies to manage rising insurance costs while still protecting our assets.”

Reducing Risk and Claims

The business model of insurance companies is greatly impacted by inflation. In order to pay claims, they need a large pool of customers paying premiums and not making claims. As claims expenses rise, they must raise premiums or go out of business. You need insurance because replacing property can be very expensive. It’s a vicious cycle of inflation and insurance costs rising.

But there are some things that can be done to reduce RISK and CLAIMS which can in turn reduce costs. These involve actions that both insurers and policyholders can take to manage risks more effectively, reduce the cost of claims, and improve the overall insurance system. Many of these require people to be more careful and some require people to pay for some of the expenses themselves rather than relying on insurance.

1. Promoting Preventive Measures and Risk Management:

• For Homeowners: Encouraging property owners to invest in regular maintenance and risk mitigation strategies (like installing hurricane shutters or flood barriers) can prevent major damage. Insurers could provide incentives, such as premium discounts, to homeowners who take preventive measures.
• For Drivers: Encouraging safe driving behaviors and the use of telematics or usage-based insurance can lead to fewer accidents and claims, which helps keep premiums lower. This is already being implemented in some insurance plans where good drivers are rewarded with lower rates.

2. Reducing Fraud:

• Insurance fraud contributes significantly to rising claims expenses, which drives up premiums for everyone. Insurers can combat fraud by using advanced technology like AI and data analytics to detect fraudulent claims more efficiently. Additionally, stronger penalties and awareness campaigns could deter fraudulent claims.
• Policyholders can also play a role by promptly reporting suspicious claims or activities.

3. Improving Claims Handling Efficiency:

• Insurers can streamline their claims processes to reduce administrative costs, which are passed on to policyholders through higher premiums. Implementing technology that automates claims processing, such as AI-based claims assessments, can lower overhead costs and reduce the time and resources spent on settling claims.
• Faster and more efficient claims handling can also reduce the long-term cost of a claim, as repairs or medical treatments initiated sooner can be less expensive than delayed ones.

4. Encouraging Pooling of Risks:

• Insurance works on the principle of pooling risks. Broadening the pool by increasing participation in insurance programs can help distribute risk more evenly and prevent premium hikes due to high claim concentrations in smaller, more vulnerable populations.
• Governments and insurers can work together to encourage more people to purchase adequate coverage, especially for underinsured risks like flood or earthquake insurance.

5. Public-Private Partnerships for High-Risk Areas:

• In areas particularly vulnerable to natural disasters, public-private partnerships can help mitigate the cost of claims. For example, the government could invest in large-scale infrastructure projects (like better levees or flood management systems) to reduce the overall damage in high-risk areas.
• Programs like the National Flood Insurance Program (NFIP) help spread the risk of flooding across a broader base, but these programs can be expanded or improved to better align with current climate risks.

6. Educating Consumers on Claims:

• Often, policyholders might file claims for small, easily repairable issues, which contributes to increased claim volume and overall costs. Educating consumers on when it’s financially smart to file a claim versus paying out of pocket for small issues could reduce the number of claims. For instance, small car dents or minor home repairs may cost less to fix than the potential premium increases following a claim.
• Encouraging higher deductibles can also help reduce small claims and lower premiums overall, as policyholders will be less likely to file minor claims.

7. Enhancing Building and Safety Codes:

• Governments can implement and enforce stricter building codes, especially in disaster-prone areas. By making homes and buildings more resilient to events like hurricanes, floods, and earthquakes, insurers will face fewer claims after disasters, leading to lower long-term premium costs.
• Encouraging the use of climate-resilient materials and practices, such as flood-proofing homes or using fire-resistant materials in wildfire-prone areas, can reduce claims and insurance expenses over time.

8. Using Technology to Predict and Mitigate Risk:

• Insurers can use predictive analytics, weather data, and advanced modeling to better understand and anticipate risks. This allows them to price policies more accurately and avoid situations where they are surprised by a surge of claims from an unexpected event.
• Policyholders can be encouraged to use technologies like smart home devices (for water leak detection, smoke alarms, etc.) or connected cars that notify users of issues before they escalate into claims. This kind of proactive approach can reduce the frequency and severity of claims.

9. Implementing “Pay-as-You-Go” Models:

• Usage-based insurance, particularly in the auto industry, ties premiums more directly to individual risk. Drivers who don’t drive often or practice safe driving habits can benefit from lower premiums, as they are less likely to file claims.
• Similar models could be adapted for home insurance, where premiums could adjust based on data from smart home systems that track risks like water leaks or intrusions in real time.

10. Reforming Litigation Practices:

• Legal costs from disputes over insurance claims can significantly inflate claim expenses. Insurance companies, policymakers, and legal bodies can work together to reform the litigation process, perhaps through mediation programs or faster resolution methods to prevent drawn-out legal battles that raise costs for everyone.
• Implementing “loser pays” rules for frivolous lawsuits could also deter unnecessary legal expenses tied to claims, helping to keep premiums down.

By addressing these factors, insurers and policyholders can help reduce the inflation of claims expenses, which would in turn mitigate the rise in premiums. Many of these strategies involve reducing risk through preventive measures, improving efficiency in claims processing, and better educating consumers about when and how to use their insurance, all of which help keep costs in check.

Profits and prophecies

While some sectors of the insurance industry have posted record profits in recent years (especially health insurers during the pandemic), others, particularly property and auto insurers, have struggled with rising claim expenses and volatile results due to natural disasters and inflation. Health insurance profits are at an all time high thanks to government getting involved in paying for medical care. Government subsidies have been a major contributor to the profitability of health insurers, particularly through Medicare Advantage, Medicaid Managed Care, and ACA exchange plans. It’s probably only a matter of time until other types of insurance demand to be subsidized.

If claims for natural disasters continue to grow, we might see new subsidies for wildfire insurance, hurricane coverage, or general property insurance to protect homeowners in high-risk areas who might otherwise be priced out of coverage. Auto insurance is already mandatory in most places, and for low-income individuals, it can be a significant financial burden. Some states have considered offering low-cost auto insurance programs to ensure that everyone can comply with legal requirements. If auto insurance premiums rise significantly due to inflation or technology changes, broader subsidies might be introduced to help low-income drivers maintain coverage. Governments tend to intervene when risks become too large or unpredictable for the private market to handle alone or when the cost of coverage becomes unaffordable for a significant portion of the population. I’m not saying this is a good thing, just a likely next step as we move into the new economy.

I asked ChatGpt if insurance costs as a percentage of household budgets have increased and this is the answer. I will put it at the end of the article because it’s basically just data reinforcing what I already said.

“Yes, insurance costs as a percentage of monthly household budgets have generally increased over time. This trend has been driven by rising premiums across multiple types of insurance, including health, home, auto, and other forms of coverage, often outpacing wage growth and inflation. Several key factors contribute to this increase:

1. Health Insurance Costs:

• Significant Growth: Health insurance premiums have risen dramatically over the past few decades. From 2010 to 2020, for example, the average family premium increased by nearly 55%, while worker wages grew by only about 27% during the same period. Even when employers cover a portion of health insurance costs, employees’ contributions (through higher deductibles, co-pays, and premiums) have gone up.
• Impact on Household Budgets: In 2023, the average household spends around 8-12% of its budget on healthcare-related expenses, including health insurance premiums, out-of-pocket costs, and deductibles. This is a significant increase from prior decades when health insurance was a smaller portion of the budget.

2. Auto Insurance:

• Rising Premiums: Auto insurance costs have also increased, driven by factors such as more expensive car repairs (due to advanced vehicle technology), rising medical costs associated with accidents, and higher claims related to severe weather events. Over the last decade, the cost of auto insurance has risen by 25-30%, depending on the state.
• Household Impact: For many families, auto insurance now consumes a larger portion of the household budget. The average annual auto insurance premium in the U.S. was around $1,771 in 2023, with higher premiums for drivers in certain regions. This has resulted in families allocating more of their income to auto insurance, especially if they own multiple vehicles.

3. Homeowners and Renters Insurance:

• Steady Increase: Homeowners insurance costs have been rising due to the increasing frequency and severity of natural disasters (hurricanes, floods, wildfires) and rising home values. From 2010 to 2020, the cost of homeowners insurance increased by about 40%, outpacing the general rate of inflation. Renters insurance has also seen modest increases, though it is still relatively affordable compared to other types of insurance.
• Impact on Budgets: For homeowners, the rising cost of insurance has pushed a larger share of household income towards protecting their homes. In disaster-prone areas, this increase is even more pronounced, and some homeowners pay thousands of dollars annually for adequate coverage.

4. Overall Insurance Spending as a Share of Budgets:

• Historical Context: In the 1970s and 1980s, insurance costs made up a smaller portion of household budgets, particularly because health insurance premiums and out-of-pocket healthcare costs were lower. Since then, the cost of healthcare and other forms of insurance has increased at a faster pace than household income for many families.
• Current Trends: On average, households spend about 10-15% of their budgets on all types of insurance (health, auto, home, and life insurance). For lower-income families, the percentage can be even higher, as rising insurance costs take up a larger share of their more limited income.

5. Inflation Outpacing Wage Growth:

• Wages vs. Premium Increases: While wages have grown in recent decades, they have not kept up with the rising cost of living, particularly the cost of insurance. Health insurance premiums, in particular, have grown much faster than wages, resulting in a disproportionate impact on household budgets.
• For example, from 2009 to 2021, the average family health insurance premium increased by about 47%, while wages grew by only 11% over the same period. This gap has made insurance a much larger expense for the average household.

6. Higher Deductibles and Out-of-Pocket Costs:

• Shift Toward High-Deductible Plans: In an attempt to control costs, many employers and individuals have shifted toward high-deductible health plans (HDHPs). While these plans have lower monthly premiums, they come with higher out-of-pocket costs when care is needed, further straining household budgets.
• This shift has also meant that while some families may pay less in monthly premiums, their overall healthcare expenses have grown due to the higher cost-sharing requirements.

7. Impact of Climate Change and Natural Disasters on Property Insurance:

• Increasing Risk: The rising frequency of natural disasters has pushed up the cost of homeowners insurance, especially in areas prone to hurricanes, floods, and wildfires. Insurers have passed these higher risks onto consumers in the form of higher premiums and, in some cases, have reduced coverage options.
• Geographical Variance: Homeowners in states like Florida, California, and Texas—where natural disaster risk is high—face particularly large insurance premium increases, sometimes doubling in a decade. This has led to a disproportionate impact on households in disaster-prone areas, with insurance costs taking up more of their monthly budgets.

8. Policy Changes and the Affordable Care Act (ACA):

• ACA Subsidies: While the ACA introduced subsidies to help lower-income households afford health insurance, many middle-income families don’t qualify for subsidies and have seen their premiums rise. For those who do receive subsidies, health insurance can be more affordable, but the overall rise in healthcare costs has still impacted their budgets through increased deductibles and other out-of-pocket expenses.
• Public vs. Private Insurance: Those on public insurance programs like Medicaid and Medicare spend a smaller share of their budgets on healthcare compared to those with private insurance, but rising premiums in the private market have been a significant issue for families.

Summary of the Increase in Insurance Costs:

• Health Insurance: As premiums and out-of-pocket costs rise, health insurance now accounts for a larger percentage of household budgets—around 8-12% for many families.
• Auto Insurance: Rising repair and medical costs have driven up auto insurance, which now takes up 2-5% of household budgets, depending on the number of vehicles.
• Homeowners Insurance: Natural disasters and inflation have led to higher premiums, especially in high-risk areas, contributing significantly to monthly expenses for homeowners.

Conclusion:

Yes, insurance costs as a percentage of monthly household budgets have increased, driven by rising premiums in health, auto, and homeowners insurance. This increase has been outpacing wage growth for many families, making insurance a larger and more significant part of household spending.”