Inflation is Causing Prices to Rise; Insurance Premiums are No Exception

Until the past year the subject of inflation for many Americans was an arcane subject last thought about when they had to crack open an economics textbook for a school exam.

This could be understood with the U.S. economy experiencing decades of low inflation and it being almost 50 years since President Gerald Ford declared that inflation was Public Enemy No. 1 in the United States in 1974.

Now, however, inflation is back, at its highest levels in 40 years, an era when President Ronald Reagan warned that inflation was “violent as a mugger.”

“Inflation is suddenly on everyone’s minds,” reported Bloomberg in December.

In the nearly six months since then, the prices of almost everything has continued to rise in the United States, and insurance premiums are no exception with recent stories pointing towards rising rates for everything from health insurance to home insurance to auto insurance to long-term care insurance.

U.S. Inflation at Highest Level Since December 1981

The Wall Street Journal reported that U.S. consumer inflation in May “reached its highest level in more than four decades as surging energy and food prices pushed prices higher.”

The U.S. Labor Department said that the consumer-price index increased 8.6 percent in May from the same month a year ago, the highest figure since December 1981.

“The increase was broad-based, with the indexes for shelter, gasoline, and food being the largest contributors. After declining in April, the energy index rose 3.9 percent over the month with the gasoline index rising 4.1 percent and the other major component indexes also increasing. The food index rose 1.2 percent in May as the food at home index increased 1.4 percent,” read the Bureau of Labor Statistics release.

While the visual of triple digit fill-ups at the local gas station are the poster child for today’s inflation, there is a rise on almost all items used in everyday life including, according to Forbes, a year over year increase of:

• Meats, poultry, fish, and eggs: 14.2 percent increase
• Fruits and vegetables: 11.8 percent increase
• Electricity: 12 percent increase
• Utility (piped) gas service: 30.2 percent increase
• Airline fares: 37.8 percent increase
• Household cleaning products: 9.9 percent increase
• Rent of primary residences: 5.2 percent increase

To answer the question “So what’s getting more expensive?” the Skimm said: “A LOT of stuff in just about every spending category. Especially ones that took a hit during the pandemic and are now bouncing back. Think: airfare, hotels, restaurants, and gas. But also products that have been in short supply, like semiconductor chips and everything that uses them (read: cars, smartphones, laptops), electricity, chicken, and oxygen (really).”

Higher Prices Traditionally Push Up Insurance Premiums

The Wall Street Journal reported in January that “higher prices for used cars, auto-and home-repair labor and materials are contributing to increasing severity of losses on auto and homeowner insurance claims.”

In fact, the Wall Street Journal argued in May 2021 when inflation was starting to rear its ugly head that consumers and business owners needed to keep an eye on insurance premiums.

“Investors hunting for signs of inflation pressure should keep an eye on something they might not usually think about: the cost of insuring a car or home,” said the Wall Street Journal.

The question was not, if insurance premiums would rise, but how much.

“The question for insurers is whether premium increases will be big enough. Part of the cost of covering a claim to repair or replace a car or home is under pressure. Factors include the global chip shortage, the scarcity of rental cars and the increased price of lumber and other building materials. The consumer-price-index measure of vehicle-repair costs has been on the rise,” reported the Wall Street Journal.

Auto Repair, Housing Materials and Computer Chips Factor In

Specific factors leading to insurance premium increases include:

• Auto Repair and Labor Costs Rising: Consumers are driving their older vehicles longer and not replacing them because of rising used-car prices. These older vehicles need car parts for repairs and those car parts have been rising due to demand and global supply chain shortages. At the same time, labor costs are rising across the board and auto repair shops are charging more to repair vehicles as a result.
• Housing Material and Labor Costs Rising: Lumber, steel, and just about any material needed in the construction industry has risen making it more expensive for insurance companies to cover the cost of replacing and repairing damaged homes. Again, labor costs are rising, contributing to even higher costs in the construction industry.
• Computer Chip Shortage: Today’s vehicles rely on computer chips and a global shortage has pushed up the cost of new cars and the cost to repair cars that are damaged in accidents.

The end result?

The Wall Street Journal reported in May that consumers need to buckle up for coming insurance premium increases.

“Rates are rising as much as 20 percent in some locations, as insurers seek increases to compensate for what they believe will be more sustained inflation,” reported the Wall Street Journal. “Consumers are starting to see the impact when their policies, which typically run for six months, come up for renewal.”

According to S&P Global Market Intelligence, the insurance premium increases vary by state with larger rate hikes by big carriers ranging from 7 to 20 percent as of March 2022.

“Some insurance companies have slowed new-business growth and tightened underwriting standards,” JMP Securities analyst Matthew Carletti told the Wall Street Journal.

In inflationary times it pays to have a trusted insurance advisor such as Dean & Draper to help you find the best coverage available that matches your personal and professional needs.

Contact Dean & Draper today to find an insurance policy that works for your budget.

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