Inflation is Affecting Everything—Including Insurance
Supply chain disruptions, high production costs and pent-up demand for services due to the pandemic have led to the highest level of inflation in decades. Government stimulus programs and the rebounding labor market caused by the pandemic have also contributed. But according too many economists, that should ease as pandemic recovery progresses.
However, the current situation in Ukraine is now causing inflation to soar. Significant government expenditures are needed to fund military conflicts, which in turn increase the federal deficit and contribute to inflation.
The conflict has also sent gas prices soaring. In addition to this, you are likely to see an increase in your auto insurance premium when your policy renews.
A dramatic cost increase in used cars and auto parts (due to shortages) has led to a skyrocketing cost in claims. Increases in rental car fees and longer rental terms due to extended repair times have also contributed. Although auto insurance prices are subject to regulatory proposals to increase premiums, increases are getting approved due to those skyrocketing costs.
Unfortunately, homeowner’s premiums are not immune to this trend. While climate change and more extreme natural disasters have already led to premium increases before the pandemic, we are now seeing additional increases due to supply chain problems leading to shortages and higher replacement costs. And although flood insurance was designed as a separate entity to cover most natural disaster claims, many recent claims caused by wind damage and other factors fall under homeowner’s policies.
Because property insurance is designed to cover a home replacement rather than its value, policyholders are subject to increases in these replacement costs.
Every item used to rebuild or repair a home—from lumber, drywall, hardware, appliances—even simple fixtures—has become more expensive and harder to find. These cost increases are being passed on from the carrier to the policyholder.
As a policyholder, you can contact your agent to shop around for better pricing. It’s also possible to lower your premium by increasing your deductible, although that leaves you at risk for decreased reimbursement if you make a claim. As it’s important to make sure you maintain the proper coverage to protect your family and your property, request guidance from your agent before making any policy changes.
By Colleen Woods-Esposito
- https://www.lietaer.com/2022/03/how-do-low-interest-rates-cause-inflation/
- https://www.whitehouse.gov/cea/written-materials/2021/04/12/pandemic-prices-assessing-inflation-in-the-months-and-years-ahead/
- https://www.nasdaq.com/articles/inflation%3A-preparing-portfolios-for-a-shifting-environment
- https://marketbusinessnews.com/financial-glossary/easy-monetary-policy/
- https://blog.pia.org/2022/03/21/yes-inflation-is-driving-up-insurance-premiums/?utm_source=dispatch&utm_medium=email&utm_campaign=dispatch-2022-03-24
- https://www.forbes.com/sites/adamstrauss/2022/01/27/the-reasons-why-a-war-in-ukraine-will-make-inflation-worse/?sh=7305e106c2d3
- https://blog.pia.org/2022/03/21/yes-inflation-is-driving-up-insurance-premiums/?utm_source=dispatch&utm_medium=email&utm_campaign=dispatch-2022-03-24
- https://www.wsj.com/articles/car-insurers-rush-to-raise-rates-as-inflation-takes-a-toll-11644415201
