Insurance is designed to protect against the unexpected, but the risks people face and the cost of recovering from them are changing.
Many people purchase insurance and rarely revisit their policies until they need to file a claim. However, home improvements, business expansions, vehicle purchases and increasing repair and rebuilding costs can leave them underinsured or paying for coverage that no longer reflects their needs.
At a time when many consumers and business owners are facing higher insurance premiums, understanding what’s causing those increases and taking steps to review coverage, reduce risk and explore available discounts can help ensure they have the protection they need while getting the most value for their insurance dollars.
What’s Driving Higher Insurance Costs?
More Catastrophic Losses and Severe Weather
Catastrophic events now account for a growing share of insured losses nationwide, from hurricanes and floods to wildfires. Insured catastrophe losses have exceeded $100 billion annually for five consecutive years, reflecting the increasing frequency and severity of disasters.
Severe weather events such as thunderstorms, hailstorms and tornadoes are also becoming more frequent and more destructive. Severe convective storms generated $51 billion in insured losses in 2025, marking the third consecutive year losses from these events exceeded $50 billion. Severe convective storm losses have become a major driver of insurance claims, often generating more insured losses than hurricanes in some years.
Rising Repair and Rebuilding Costs
When homes and businesses are damaged or destroyed, it costs significantly more to repair or replace these structures than it did just a few years ago. Repair and rebuilding costs have increased nearly 30% over the past five years, driven by rising construction costs and labor shortages. Similar cost pressures are affecting vehicle repairs as well. These higher costs increase the expense of recovering from a loss for both insurers and policyholders.
The Impact of Inflation
Inflation continues to affect nearly every aspect of daily life, from groceries and housing to gasoline, electricity, heating costs and other household expenses. Insurers are facing many of the same cost pressures.
Beyond construction and repair costs, insurers also face rising medical costs. Higher prices for hospital care, physician services, prescription drugs and rehabilitation services can increase the cost of injury-related claims, placing additional pressure on insurance costs.
Legal System Abuse
Legal system abuse is another factor contributing to higher insurance costs. Excessive litigation, inflated claims practices and other abuses of the legal system add an estimated $6,664 annually to costs borne by the average American family of four.
One issue that has drawn increased attention is third-party litigation funding (TPLF), in which outside investors finance lawsuits in exchange for a portion of any settlement or award. The practice can contribute to prolonged litigation and higher legal costs, increasing claim expenses that may ultimately be reflected in insurance premiums.
Reforms designed to address legal system abuse can help reduce unnecessary litigation and create a more stable insurance marketplace. Florida has enacted significant legal reforms in recent years aimed at curbing excessive lawsuits and reducing litigation costs. While it will take time for the full impact of these changes to be realized, early indicators suggest the reforms are helping improve market conditions and attract insurer participation in the state. Some insurers have already announced significant policyholder dividends and rate reductions, signaling increased confidence in the state’s insurance market.
Maintaining Financial Strength
Insurance companies cannot arbitrarily raise rates. In most states, rate increases must be reviewed and approved by insurance regulators. Insurers are also required to maintain financial reserves to ensure claims can be paid when customers need them most.
As catastrophe losses grow larger and more frequent, insurers must maintain sufficient financial resources to meet their obligations to policyholders. Regulators closely monitor insurers’ financial condition to help ensure coverage remains available and insurers can meet their commitments to policyholders.
What Consumers and Business Owners Can Do
While consumers and business owners cannot control inflation or the weather, they can take steps to reduce risk and potentially lower insurance costs.
Review Your Coverage Annually
Home renovations, business expansions, vehicle purchases and rising construction costs can all affect your insurance needs and whether your coverage remains adequate. Reviewing your policies each year can help ensure you have adequate protection and that your coverage reflects your current circumstances.
Ask About Discounts
Many insurers offer discounts for bundling policies, installing safety devices, maintaining a claims-free record, taking defensive driving courses or making property improvements that reduce risk.
Consider Your Deductible
Increasing your deductible may help lower your premium. Before making any changes, make sure you can comfortably afford the higher out-of-pocket expense if you need to file a claim.
Invest in Resilience
Taking steps to strengthen your home or business can help reduce damage from future disasters. Depending on where you live, improvements such as impact-resistant roofing, storm shutters, wildfire mitigation measures or updated electrical and plumbing systems may help reduce risk and potentially qualify you for discounts.
Talk to Your Insurance Professional
An insurance review can help identify coverage gaps, uncover available discounts and ensure your policies reflect your current needs and financial goals.
Keeping Pace With Today’s Risks
Insurance is designed to help protect the people, property and businesses that matter most. But as risks change and costs rise, it’s important to make sure your coverage keeps pace.
The insurance industry recognizes that higher premiums can place additional strain on household and business budgets, particularly at a time when many consumers are facing rising costs across nearly every aspect of daily life. Insurers are committed to helping customers manage risk, reduce losses and identify available discounts and savings opportunities. At the same time, growing catastrophe losses, rising rebuilding and medical costs, and increasing litigation expenses are driving up the cost of claims, making affordability a challenge across the insurance marketplace.
While rising insurance costs can be challenging for households and businesses already facing higher everyday expenses, understanding the factors driving those increases can help consumers make informed decisions about managing risk and protecting what matters most.
