Soaring Insurance Rates Have States Considering Price Caps

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Alex Ossola (0:18)

Major websites and apps were down for millions of people as the Amazon Web Services outage continues. Plus, big price increases for home and auto insurance have some states considering price caps.

Jean Eaglesham (0:30)

That's a balanced regulator say they're trying to draw, which is very difficult. So protecting policyholders without leading to a California style exodus of insurers.

Alex Ossola (0:40)

And a report of strong iPhone sales sent Apple stock to a new high. It's Monday, October 20th. I'm Alex Ossola for The Wall Street Journal. This is the PM Edition of What's News, the top headlines and business stories that move the world today. Amazon was working to fully restore service more than 12 hours after a wide-ranging internet outage began. Millions of websites and platforms rely on Amazon Web Services for cloud computing, and problems with its network affect the wider internet. Disruptions were reported for a range of companies, from Facebook and Snapchat to financial services companies, including Fidelity and Venmo, to United Airlines, to Amazon's own shopping site. The Wall Street Journal was one of several media organizations feeling the impact today, and for me personally, my attempt to book some holiday travel did not work. The outage began around 3 a.m. Eastern time, after an error in a technical update to a widely used database service that knocked the database offline in Amazon's data centers in Northern Virginia. Other AWS services then failed too. Belle Lin, who covers AI and enterprise technology for the journal, told us why it's taking so long for Amazon to fix this issue.

Belle Lin (1:57)

There's typically a lot of complexity involved in any cloud infrastructure service, but in this case, it sounds like from what Amazon has told its customers, that there's a lot of different services involved. It's not just its DynamoDB database, but an issue there that caused a bunch of other services to go down. And so when things like that happen, it's not easy for any cloud provider, whether Amazon, Microsoft or Google, to get all their services back online. And then one other caveat that's important to note is that the data center that was affected here is one of Amazon's oldest. And so what tech insiders sort of know is that there's a lot of legacy and sort of older tech there. And so those are some of the underlying issues at play here.

Alex Ossola (2:37)

AWS is the largest cloud computing service provider in the US. Outages in cloud services aren't uncommon, but have become more noticeable as more companies rely on them.

America is in a cost crisis when it comes to home and auto insurance. Since 2020, state regulators have allowed companies to raise the cost of insuring a home by an average of 50 percent. And increases in auto rates aren't far behind. That's according to S&P Global Market Intelligence. Some states have a controversial answer to those big rate hikes, price controls. Jean Eaglesham covers insurance for the Journal and joins me now with more. Jean, you write that the cost of home and auto insurance premiums have gone up a ton across the US. How much are we really talking and why is this happening?

Jean Eaglesham (3:27)

What we've seen since the pandemic is rates up to doubling in some states. So far outstripping inflation. And there's a number of factors driven that. One is high inflation in things like repair costs, replacement costs.

We've seen the value of homes go up. Also, we've seen a rise in natural catastrophes. So hailstorms, wildfires. All of that combining is insurers have pushed up premiums very significantly year on year. We're now starting to see a slight easing in auto rates. But overall, I think homeowners and drivers are really feeling the pain of this.

Alex Ossola (4:04)

So in response, several states are considering putting price controls on those premiums. What do those proposals look like?

Jean Eaglesham (4:11)

Insurance has a long, long history of being a regulation by state that exempts it from the federal antitrust laws. And the states take their own approach to whether they think price caps are appropriate or not. Illinois is an interesting example. The governor there this summer backed a form of veto for the regulator so they could reject rate increases. And that was after a very significant increase by state farm. And he was kind of incensed that he couldn't do anything about that. We're also seeing, for example, Louisiana is interesting. They've introduced a measure that bans so-called excessive rates. And they can be defined as excessive without any actuarial underpinning. So you don't have to show that there's no basis for it. You can just say, it seems excessive to me. And they can even demand refunds from the insurers.