We are currently facing the most significant wave of inflation in close to 40 years. This March experienced 8.5% higher prices compared to the year prior, making it the biggest price increase since the 1980s. These rising costs are affecting every aspect of the American economy, from its manufacturing, distribution, laborers, and consumers. As the cost of goods goes up, so does the cost to insure them. Many people are concerned with the steady rise in costs and wonder, how will this affect my insurance plan? Can I still afford to protect my home, business, and other vulnerable assets? Inflation is caused by a variety of factors, but it's likely going to remain or increase over the next year or two. Understanding how inflation is affecting the insurance marketplace is key to being prepared for years ahead.
What’s Really Driving Inflation?
There is always a threat of inflation lingering in the economy, but over the past few decades, the United States has experienced a relatively low cost of goods and services. This can be primarily due to the high level of innovation and production, allowing for low costs and sustainable consumption. Now in 2022, we’re experiencing a series of events that have forced interest rates to increase from their long-standing low level and create a domino effect of price increases. Two primary causes are the Covid-19 pandemic and the supply chain issues that followed. We are in a place of high consumer demand with very low labor, a truly disastrous combination. We saw an extended period of low consumption due to lockdowns and unemployment. On top of these economic factors, the US experienced the highest levels of job resignation, known as “The Great Resignation”. All of these factors, and more, have been leading causes of our current state of inflation.
Is Inflation Causing Insurance Premiums to Go Up?
Inflation affects every part of the economy, and that includes the insurance marketplace. If you think about what insurance is in a broad sense, it's a calculation of what it would take to replace an item/assets or provide monetary value to make up for a loss of goods and or services. Insurance companies have to diligently value items at their most current and accurate cost. As economic prices increase, the insurance companies have to revalue programs at the time of renewal. So for this year with such significant inflation of costs, people should expect their premiums to reflect that.
For example, if car parts are affected by inflation, and labor shortages are also making the labor more expensive, the insurance to cover these costs must correspond with the higher monetary value. This holds true across all individual marketplaces. From home insurance, auto insurance, business insurance, and specialty insurances. Valuation will take into consideration all the different costs that go into the final “value” of whatever is being covered.
Can You Reduce Insurance Premiums?
There are definitely ways to cut costs on your insurance program if you’re looking to save, even during inflation.
Home insurance has a few ways to reduce costs. One way is to shop around insurance providers, and find a similar policy at a lower cost! In some cases, insurance companies will offer initial discounts or special prices for new customers. If you love your provider and don’t want to leave, try bundling your home insurance with other coverages, so you’re not paying separate premiums for each policy. A lot of providers will offer discounts for homeowners with good credit, long periods of time with no claims, or if you’re above a certain age. Check with your provider to see if you qualify for any discounts.
Car insurance is a market hit hard by the inflation crisis. Similar to home insurance, shopping around can with multiple insurance providers helps you lower your costs. If you have a good driving record or are over the age of 25, you may be eligible for discounts as well. If you’ve moved, be sure to update your provider! Geo-locations have different risks associated with them, so you may be able to cut costs based on a new location. Another way to cut costs is to lower your coverage. You may have coverages you don’t need, especially if you don’t drive often or if you work from home. Though it's always better to have more protection than less, if you need to lower your premium for your auto, these are all available options.
Cutting costs for specialty insurance may look similar to home and auto coverages. Shopping around is always a good way to see if you’re getting the best possible rates. Certain policies like professional liability or cyber liability can be endorsed onto a pre-existing policy. Additionally, re-valuating your assets yearly or every few years is important to make sure you’re coverages are accurate.
Wage and labor increases due to inflation can increase the premium of workers' comp policies and employee benefits. Medical supplies and treatment are directly impacted by inflation, and they are a significant coverage for employee-related insurance policies. To cut costs on employee insurance, you can increase the deductible which will lower the upfront cost. Employee-related insurance should always be reviewed by an expert to ensure coverage is meeting standards.
Will Inflation Keep Rising?
There is no definite way to predict the future of inflation. Due to Covid 19 and the massive amounts of stimulus money that was provided to American citizens, experts predicted some level of inflation to incur as a result. At this point, experts are confident that inflation will remain as it is as least for the remainder of the year. With insurance premiums, though inflation is a driving force of increase, it’s not the only determining factor. Home insurance has been increasing at a much faster rate than inflation, and at times auto insurance has fallen into the same trend. When understanding your premiums and preparing for your next renewal, doing your research with providers and utilizing discounts will keep you more stable in the market.
Expert Insurance With ECBM
ECBM can assist you in finding the right insurance program at the best cost. With the market constantly changing, it can be difficult to keep up with the latest insights. Our team of experts is dedicated to helping you manage your risk so you can focus on the bigger picture. For information on our services and specialties, contact one of our agents today.