Why Are Home and Car Insurance Costs Skyrocketing in 2024?


  • Both car and home insurance costs have been on the rise this year, with each up around 23% year-over-year.
  • While climate change and rising construction costs are weighing on homeowners’ insurance premiums, auto insurance prices are climbing due to a rise in severe claims.
  • Rising insurance premiums contributing to hidden inflation continue to weigh on consumers. 
home insurance costs - Why Are Home and Car Insurance Costs Skyrocketing in 2024?

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Both car and home insurance costs have surged across the country this year. Indeed, as of February 2024, the average premium on a home has climbed to roughly $141 per month on $250,000 worth of dwelling insurance, per CNBC. This represents a 23% jump from January 2023.

Homeowners insurance is considered a “stealth inflation driver” in that it often goes unappreciated in monthly inflation gauges like the consumer price index (CPI). In fact, the CPI only looks at changes in the cost of renters insurance, which hasn’t actually climbed nearly as much as homeowners insurance.

If the CPI did measure changes in homeowners insurance costs, it would have climbed an additional 0.7% to 4.11% in 2023, according to Bloomberg Intelligence’s Andrew John Stevenson.

The rising costs of homeowners insurance can be largely be pinned down to a few key reasons. This includes the growing number of costly weather events in the U.S., a possible repercussion of climate change. In 2023, 28 weather disasters contributed to a record $1 billion in damages, according to Axios.

As such, the states with the highest insurance costs tend to be more frequently subject to harsher extreme weather events like hurricanes, wildfires and tornadoes. With the 2024 hurricane season quickly approaching, expect the impact of the events to be reflected in insurance premiums in a year to a year and a half.

Higher construction costs have also made repairs more expensive. Residential building costs have soared almost 28% since 2020, raising the risk level for insurers — and consequently the premiums for buyers.

Rising Home Insurance Costs Add to Struggles of Home Ownership

Rising home insurance costs also serve to further the weight of the already-hefty burden of home ownership in 2024.

With home prices trending at record levels and 30-year mortgage rates likely to remain above 7% for the foreseeable future, homeowners insurance is simply another cost would-be homebuyers need to take into consideration before going forward with a property.

Worse yet: It’s likely not getting any better anytime soon. Comparison website Insurify predicts insurance costs will rise another 6% this year.

Additionally, because insurance premiums and maintenance costs can change each year, even relatively small annual changes can have notable effects on the budgets of American homeowners — even for those who managed to lock in a low mortgage rate.

The home affordability index fell to its lowest level since 1985 in 2023. And that’s without taking factors like home insurance costs into consideration.

What About Rising Car Insurance Costs Soaring?

Auto insurance costs have also skyrocketed this year, nearly as much as homeowners insurance. March data shows that car insurance costs are up 22.2% from a year ago. March actually marked the largest annual increase in auto insurance costs since 1976. In December of that year, prices climbed 22.4% year-over-year (YOY).

The most significant factors in rising driving insurance costs are the increasing number of severe claims, as well as the prices of parts.

“In general, the numbers of crashes, injuries, and fatalities are up, and inflation has made the cost of repairs more expensive,” AAA spokesperson Robert Sinclair told Yahoo Finance.

According to Sinclair, drivers developed “bad habits” on the road, largely stemming from the pandemic lockdowns. Reasonably so, drivers apparently sped and used intoxicants behind the wheel more frequently during the pandemic, while also increasingly neglecting to wear seat belts. This has weighed on insurance costs as rising loss ratios force insurers to push up premiums.

In 2021, road fatalities jumped by more than 10% to the “highest level since 2005,” even despite the fact that most Americans were stuck at home. This was the highest percentage jump ever recorded, according to the National Highway Traffic Safety Administration (NHTSA).

Unfortunately, some analysts predict further rate hikes for auto insurance may be on the way.

“While the magnitude of rate increases is likely to ease somewhat, after several years of double-digit increases, some lingering claim cost inflation and adverse claim severity and frequency will likely lead to a ‘higher for longer’ auto rate environment,” said CFRA analyst Cathy Seifert.

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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