Let’s be honest, inflation is hardly a surprise these days — but that doesn’t make it any more pleasant to deal with. Just as inflation has impacted the cost of food or buying a new car, you’re likely to find that inflation has an impact on your insurance. Today on the blog, we’re breaking down why you might see a change in your rates when the market gets tough.
Here’s what we know from the last few years.
Economics is an imperfect art, but it can be helpful to look back on recent history to gain insight into what lies ahead.
In 2021 and so far in 2022, we saw rising property claim payouts due to heightened storm activity, labor shortages, and increased cost of materials. Auto insurance followed suit with supply chain issues increasing the cost of repair; however, claim frequency reduced with fewer drivers on the road — a trend we don’t expect to last.
Another observation: insurance carriers weathered the challenges of a global pandemic differently based on a variety of factors including their concentration of business, the accessibility of materials in their area, and how they’ve structured their reinsurance. Those factors impact their current response to inflation.
What are the factors going forward?
While we can certainly learn a lot by looking back, we also need to be able to anticipate what’s ahead. What considerations are likely to impact your insurance over the next few years?
The cost of inflation
During periods of high inflation, everything is more expensive — and that includes the cost of paying out insurance claims. Here are a few factors that actively contribute to higher insurance costs:
- Increase in natural disasters. The more storms, the higher the claim frequency.
- Supply shortage. When supply can’t meet demand, prices go up.
- Cost of labor. Repair costs go up when the price of labor rises.
- Rising cost of healthcare. As healthcare claims become more expensive as related to accidents, so do premiums.
- The buying power of money. Money simply doesn’t stretch as far, so the cost of doing business goes up.
- Geopolitics. War, tariffs, and instability have a significant impact on shipping and the availability of goods.
Nothing about a global pandemic is business as usual. Like many businesses, insurers had to make some sacrifices to keep operations running — these sacrifices are now resurfacing as points of concern.
Over the last year or two of inflation, insurers were slow to raise rates, with some even offering rebates and supplements to provide incentives. Consumers will note that this trend has shifted (and quickly): premiums are climbing at a speed higher than the current inflation rate with no end in sight.
How will my rates be affected by inflation?
You are likely to see your rates climb due to inflation — the real question is, how much will they be impacted? Unfortunately, there is no straightforward answer, as inflation touches many aspects of the price of insurance.
Some areas are within your control: what type of policy do you have and who is your insurer? You may be able to lower your rates by altering your policy or moving to another insurance provider, but keep in mind that every insurer will be similarly impacted by the current state of inflation.
To combat inflation, your insurer may make some changes to your policy, including increasing the length of policies, raising the deductible, reducing benefits, or excluding specific perils. Of course, you may see changes to your premium as well.
As the cost of paying out claims increases, the rising costs will eventually be passed onto the consumer through higher premiums. This is true across the board, from the rising cost of healthcare to auto and home repair prices.
Lindow Insurance can help.
We understand the frustration of dealing with inflation-driven changes to your policy. At Lindow, our job is to take the stress off of you. Our agents are here to advise you — and that includes when the going gets tough. Contact us to let us know how we can help.