The best approach for policymakers is to resist the call to intervene in the P&C market.
Property and casualty (P&C) insurance rates nationwide have soared since 2021, with some states- particularly Florida and California- seeing dramatic increases. According to a November 2023 release by the Congressional Research Service (CRS), auto insurance rates increased by an average of 18.9 percent year-over-year. From January 2023 to February 2024, homeowners insurance premiums rose by 23 percent on average. Commercial property insurance premiums have seen a relentless rise: the second quarter in 2023 marked the 23rd consecutive quarter in which they rose.
Texas has felt the force of these rising rates more than most states. Auto insurance rates increased by an average of almost 24 percent in Texas in 2022. From May 2021 to May 2023, homeowners insurance premiums increased by an average of 46 percent in Texas.
The soaring cost of homeowners insurance is regrettably offsetting the property tax relief that the Legislature has recently provided to Texans. Texas now ranks in the top few states in the country in terms of average annual homeowners insurance premiums. The precise ranking and the estimated annual premium (based on $300,000 in dwelling coverage) depend on the source, as illustrated below:
· 2024 Bankrate survey: Ranked Texas 6th highest ($3,726);
· 2024 Insurance.com survey: Ranked Texas 7th highest ($3,851);
· 2024 survey by NerdWallet: Ranked Texas 2nd highest ($4,400).
Soaring P&C insurance rates are the result of a near “perfect storm” of various and sometimes related factors in recent years, including poor industry performance; an increase in the number of especially damaging storms and disasters; rising reinsurance rates; pronounced inflation, especially with respect to building materials and construction labor; and interest rates that rose significantly and rapidly after reaching historical lows in 2020 (and being low for most of the 2010s). These factors often overlap with one another; for example, the rising cost of building materials means that, all else being equal, storms cause more financial damage.
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