There has been a trend in the media to blame climate change for many, if not all, of our current challenges. Such is the case with the June 20 Press Herald banner pinning this as the cause for rising homeowners’ insurance rates. There are several forces at work, and there is no disputing the changes that seem to be occurring in weather patterns, but in this particular instance, Bidenomics might be the more accurate cause.
The insurance industry is fiercely competitive, populated by roughly 1,000 companies operating in a market of fixed size. When capacity leaves the market, when capital shrinks, prices rise. Over the past four years, as interest rates have risen, the value of the bond portfolios, which are the foundation of the industry’s capital base, has shrunk. Add to this the cost pressures brought on by the inflation spike that has driven construction costs significantly higher, and there is little wonder that the insurance industry has been seeing the first broad increase in pricing since I retired from my Wall Street position researching the industry 21 years ago.
Michael Smith
Wells
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