What’s Driving Up Insurance Premiums?

On Feb 11, 2025

By Gary La Spisa, Senior Vice President, ICNJ

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Lingering inflation, harmful legislation, weather-related events and legal system abuse are all impacting the cost of doing business.

As the trade association for the property-casualty insurance industry, the Insurance Council of New Jersey (ICNJ) understands that policyholders can be nervous when their insurance policy renewal notice arrives in the mail. For New Jersey business owners, it is important to know the cost drivers and what can be done to help reduce the upward pressure on premiums. More importantly, by understanding the relationship between insurance company losses and premiums, businesses can gain an improved picture of how reducing their own risk can assist in premium stability. 

At the ICNJ, we continuously meet with state legislators and staff to raise the alarm on legislation that will increase the cost, frequency, or burden of proof in litigation. These increases are coming fast and furious while the insurance industry and our policyholders are dealing with the lingering impact of inflation on the cost of rebuilding and replacing damaged property, and the nationwide phenomenon of litigation abuse. 

Business owners know that inflation continues to be a major concern, even though it has started to cool. Given the delayed nature of insurance pricing, where increased costs cannot be accounted for in premium charges until after they are incurred by insurers, carriers are still working to close the gap of repair and replacement costs that dramatically increased during and after the COVID-19 pandemic. Between January 2020 and June 2024, some of the industry’s most important cost drivers have shot through the roof. Over that time, construction labor costs are up 35%, materials are up 40.6%, and motor vehicle parts and equipment are up 21.6%. These increases translate into more expensive repair and replacement claims, which translates to higher premiums. 

The increased cost of repair and replacement claims is further exacerbated by the corresponding increases in the frequency of these types of claims. In 2023, there were a record 28 weather events nationwide that caused over $1 billion in economic damages, up from 18 in 2022. It is not just hurricanes and floods. Claims resulting from severe thunderstorms, wildfires, winter storms, hail and tornadoes are all increasing rapidly as property values in at-risk areas continue to increase. 

These are costs that nobody can control, yet New Jersey’s market is also impacted significantly by legislative and regulatory decision making. 

In recent years, multiple laws in New Jersey have been enacted that drive up the cost of litigation, which drives up the loss costs that insurers pass on to businesses. This includes laws that: increase the fees paid to doctors and lawyers in workers’ compensation cases; dramatically increase the minimum insurance requirements for commercial automobiles; and impose minimum liability insurance and onerous registration requirements on business owners. It is not just impacting commercial insureds; there have been numerous bills that significantly increase the cost of insurance for personal lines policyholders. 

In the courtroom and at the settlement table, litigation abuse is impacting business operations across all sectors. The American Tort Reform Foundation in 2023 once again named New Jersey to its “Judicial Hellholes” watchlist. According to ATR: “This year, the plaintiffs’ bar continued to exercise outsized power and bipartisan influence over New Jersey’s Legislature.”

What is driving litigation abuse nationally? One of the most visible symptoms is attorney advertising, which has become increasingly aggressive over the last decade, growing by more than a third between 2013 and 2023 to a nationwide total of nearly $1.2 billion. This shouldn’t surprise anyone who drives in New Jersey, as billboards encouraging people “to call a lawyer first” have become almost as prolific as their cousins plaguing Florida roadways. Less visible – though more concerning – is the growth in jury awards. Through 2020, the latest period available, the average jury award grew by 274% over 10 years. Nuclear verdicts, jury verdicts of $10 million or more, and thermonuclear verdicts, defined as jury awards of $100 million or more, plague the commercial insurance marketplace and are the largest drivers of increased premiums for commercial lines policies. Most of these verdicts hit commercial auto accidents, product and medical liability, and premises liability. 

The combined effect of a plaintiff-friendly Legislature, a court shifting towards increased liability and an aggressive trial bar is that individual business owners cannot afford to sit on the sidelines when the Legislature is creating new or increased litigation exposures. 

So, what can business owners do? Primarily, the simplest way to reduce the cost of insurance is to shop around. For both personal and commercial lines policies, utilizing the expertise of an agent to ensure that your policies are best tailored to your needs is the first step. Businesses also should take an integrated approach to enterprise-wide risk management planning. Given the nature of risk-based pricing in insurance, improving risk management practices will naturally reduce upward pressure on premiums, which a skilled agent will know how to maximize. 

Finally, it is crucial for business leaders to be engaged in any legislation or regulation that can increase the cost of litigation both for business broadly and for their specific industries. Business leaders need to take the view that an effective government affairs program is an extension of their risk management planning. Being an active member of industry-specific trade and broader business organizations, participating in their government affairs committees, and sharing the real-world impacts of legislative and regulatory proposals have never been more important as it is today. While the ICNJ and our members will continue to be active partners in the Legislature, there is no substitute for the voice of the commercial policyholders in this fight. 

To access more business news, visit NJB News Now.

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