Insurance costs are skyrocketing due to significant changes in the industry that are making it harder for insurance companies to make a profit, including increased financial pressure from frequent and severe natural disasters, a challenging legislative climate, and “nuclear verdicts” in the judicial system. These factors are creating a “hard market” where premiums increase, and coverage becomes harder to obtain.
The combination of higher claim costs, social inflation (outpacing economic inflation), and uncertainty forces insurers to raise rates and sometimes drop coverage altogether to ensure solvency. The goal of Engineered Tax Services (ETS) is to leverage expertise and creative solutions to help clients become more proactive, evaluate their total cost of risk, and work on protecting the value they have built by identifying ways to bring costs down wherever possible.
Key Factors Driving Skyrocketing Insurance Costs
- Natural Disasters: An increasing frequency and severity of weather events (hurricanes, wildfires, severe storms) is compounding losses for insurers, driving up the overall cost of coverage.
- Inflation/Cost of Repair: Rising costs for building materials and a skilled labor shortage mean that the cost to repair or replace damaged property has increased significantly, resulting in higher claim payouts.
- Nuclear Verdicts & Social Inflation: Large jury awards, often exceeding $10 million, known as “nuclear verdicts,” are becoming more frequent. This social inflation (rising liability costs driven by legal and societal trends) significantly increases insurers' risk exposure and liability premiums.
- Legislative Climate: Changes and pressure within the legislative and regulatory climate can also impact insurance companies' profitability and willingness to offer coverage in certain jurisdictions.
- Profitability Pressure: All these factors combined are putting severe pressure on insurance companies' reserves and profitability, forcing them to raise premiums or restrict coverage to maintain financial solvency.
