Why Your Insurance Costs Are Skyrocketing — The Hidden Catastrophe Costs You Must Know

Published Date: 10/01/2024

Why Your Insurance Premiums Are Skyrocketing: The Hidden Costs Behind America’s Catastrophe Crisis

If you’ve opened your latest insurance renewal notice and gasped at the premium increase, you’re not alone. Across the country, homeowners, renters, and drivers are seeing dramatic spikes in insurance costs. From Florida to California, insurers are recalibrating their models — and their rates — to deal with a world where “once-in-a-century” disasters now seem to happen every year.

In a recent episode of Insurance Hour, host Karl Susman explored the forces behind the crisis — from catastrophic weather events to regulatory constraints — and offered guidance for agents and consumers alike trying to navigate the turbulence. The takeaway: this is not a temporary spike. It’s a systemic reset.

Let’s unpack what’s really going on.

Catastrophe Nation: When Every State Feels the Shock

“We have catastrophe events happening literally from sea to shining sea,” Susman said, referencing the ongoing hurricane devastation in Florida and the wildfires raging in California.

These twin crises perfectly illustrate the dilemma insurers face: how do you price risk when loss is virtually guaranteed?

Insurance depends on uncertainty — on pooling risk so that the many who don’t file claims pay for the few who do. But as Susman pointed out, that math starts to break down when billion-dollar disasters occur with regularity.

“How do you turn around and price something where there’s a near certainty that there’s going to be a loss?”

That question haunts every insurer operating today. The result has been a historic tightening of availability: in California, roughly 90% of property insurers have stopped writing new policies. That means fewer options, higher prices, and a rapidly expanding reliance on last-resort programs like the California FAIR Plan.

Insurance 101: The Pricing Puzzle

At its core, insurance pricing comes down to risk and probability. Companies collect premiums based on the expected frequency and severity of losses. When those losses escalate — and they have — premiums must follow.

Susman broke it down simply:

• When there’s less likelihood of a claim, your premium is lower.
• When there’s more likelihood, your premium rises.

But the challenge now is that insurers are facing certainty, not probability. When wildfire seasons stretch longer and hurricanes intensify, the predictive models that once guided rates are being outpaced by climate reality.

And the pain isn’t limited to homeowners. Auto, life, and renters’ insurance are all affected by the same pressures — reinsurance costs, repair inflation, and broader economic volatility.

Behind the Scenes: How Insurance Billing Complicates Everything

In one segment of the show, a caller asked about agency billing — a topic most consumers never think about but one that can significantly impact how agencies operate (and how efficiently policyholders are served).

Under direct billing, the insurer invoices the customer directly.
Under agency billing, the agent collects payment and then remits it to the carrier — a process that can get messy fast.

“It really is a tough process,” the caller said. “Sending out invoices, taking checks, depositing, waiting for settlement — it’s all manual.”

Susman agreed, noting that this back-office burden is a major pain point for independent agencies. He recommended exploring digital solutions that simplify the process — such as AgentSnap, an insurtech platform that automates billing, financing, and premium collection for agencies.

It’s a reminder that efficiency matters: when agencies spend less time on accounting, they can spend more time helping clients understand coverage and navigate rate shocks.

Earthquake Insurance: The Forgotten Catastrophe Coverage

Susman then pivoted to a topic many Californians avoid until it’s too late — earthquake insurance.

Despite living on one of the most seismically active fault systems in the world, most homeowners in California still don’t carry earthquake coverage. And many don’t realize that standard homeowners policies exclude earthquake damage entirely.

“Did you know that earthquakes are not covered by your homeowner’s insurance policy?” he reminded listeners.

That’s why he strongly recommended checking out companies like GeoVera, which sponsor the program and offer customizable earthquake coverage outside the state-run California Earthquake Authority (CEA).

A Look Back: Northridge and the Birth of the CEA

The 1994 Northridge earthquake was a turning point. The $40 billion disaster caused insurers to reevaluate their risk exposure.

Before Northridge, state law required insurers offering homeowners policies to also offer earthquake insurance. When carriers realized they couldn’t afford the potential losses, they stopped offering both.

“For a period of time — over a year — property insurance carriers were not offering insurance because of that requirement,” Susman explained.

The standoff led to the creation of the California Earthquake Authority (CEA), a quasi-public entity that provides basic earthquake coverage. The CEA’s offerings meet legal requirements but often come with limited personal property coverage and high deductibles — just enough to satisfy regulatory mandates, but not necessarily to rebuild lives.

Today, private carriers like GeoVera compete alongside the CEA, offering broader options — though pricing varies depending on location, construction type, and building age.

When to Buy (Hint: Not After a Quake)

Timing matters. After any significant seismic event, insurers impose a moratorium — a temporary freeze on new earthquake policy sales.

“It’s not really fair,” Susman said, “to buy a policy when it’s almost a certainty that within the next 24 or 48 hours, you’re going to have another shake.”

That means the best time to secure coverage is now — before the next tremor. Once an earthquake hits, it’s too late.

Auto Insurance: The Rate Riddle Everyone Feels

After earthquakes, Susman shifted gears to the topic that triggers more complaints than any other: auto insurance.

“Auto insurance is one of those things that gets under people’s skin the most,” he admitted.

Consumers often ask:

“I’ve been paying for 10 years without a single claim — now I have one accident and my rate goes up. How is that fair?”

The answer lies in how insurers assess risk. Policies typically renew every six months, allowing carriers to reevaluate each customer’s recent behavior. An accident — even after years of clean driving — alters the statistical likelihood of another claim.

“You’re a different risk profile at that point,” Susman explained. “They’re not trying to gouge you — they’re just using math.”

In short, premiums reflect the current version of you, not the decade-old one.

The Regulatory Angle: California’s Rules Matter

In states like California, strict regulations govern how far back insurers can look and how much they can surcharge for accidents.

For example, both a driver with zero tickets and one with ten speeding tickets could, after three years, qualify for the same Good Driver Discount under current California law.

These well-intentioned consumer protections can have unintended consequences, limiting insurers’ flexibility to price risk accurately — which, in turn, can lead to broader rate hikes across the board.

Life Insurance: Confronting the Taboo

Life insurance often gets overlooked because it forces people to confront uncomfortable truths.

“In our country, death is viewed very differently than it is in other parts of the world,” Susman observed. “The average person here might see a dead body once or twice in their life.”

That discomfort leads to avoidance — and leaves families financially vulnerable.

Susman emphasized the importance of term life insurance for mortgage protection, explaining how it differs from the old “mortgage protection insurance” products that lose value over time. Term life keeps premiums stable and benefits level — giving beneficiaries flexibility to pay down or invest funds as they choose.

He also broke down permanent life insurance, including whole, universal, and indexed life options, which provide lifelong coverage and potential cash value accumulation. His advice: seek a specialist.

“This isn’t usually the person you get your car insurance from,” he said. “Find someone who specializes in life insurance.”

Renters Insurance: The Unsung Hero of Affordability

With homeownership increasingly out of reach, more Americans are renting — but many renters underestimate their exposure.

“Renter’s insurance flies under the radar,” Susman said. “People think, ‘I don’t own anything valuable,’ but that’s not the point.”

Renter’s policies typically cover two main things:

1. Personal Property – protecting belongings from fire, theft, and water damage.
2. Liability Coverage – protecting renters if they accidentally cause injury or damage to others.

He illustrated with a simple example: if you leave a suitcase in an airport walkway and someone trips and sues, your renter’s insurance steps in to defend and cover costs.

The best part? It’s affordable.

“You could be paying about $500 a year for $30,000 in property coverage and up to half a million dollars in liability protection,” he said. “That’s a lot of peace of mind for not much money.”

The Bigger Picture: Why Everything Feels More Expensive

So, why are all these insurance types — home, auto, life, renters — becoming more costly at once?

The answer lies in three interrelated trends:

1. Climate Risk Intensification – More frequent disasters drive massive insured losses.
2. Reinsurance Pressures – Global reinsurers are hiking rates, forcing carriers to pass costs downstream.
3. Regulatory Lag – Outdated approval systems and rigid rules prevent insurers from adapting quickly, leading to reduced competition and availability.

These systemic pressures compound, creating what Susman called a “near certainty of loss” environment — a challenge no pricing model can easily absorb.

Final Thoughts: Knowledge as Insurance

While consumers can’t control hurricanes, wildfires, or state regulation, they can control how informed they are.

Susman’s key advice throughout the episode was clear:

• Know what your policy covers and excludes.
• Buy specialty coverages like earthquake insurance before you need them.
• Understand that premiums reflect real-world risk — not corporate greed.
• Work with experienced brokers who understand both the product and the evolving marketplace.

As catastrophe losses continue to mount, insurance will only grow more complex — and more essential.

“We have to remember what insurance really is,” Susman concluded. “It’s about transferring risk — protecting yourself against the unknown. And right now, the unknowns are bigger than ever.”