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  • Writer's pictureBrooke Willhite

Rising Above Historic Inflation

What is inflation?

Inflation is an increase in the prices of goods and services. It is a natural consequence of economic growth and occurs when a country’s economy increases rapidly. Inflation means that there is more demand for goods and services, which in turn results in higher prices.

How does inflation effect my insurance premium?

Inflation can cause your premium to increase. Insurance rates are based on how much it would cost to replace damaged property, or to settle a personal injury claim. If the price of those items has been affected by inflation, you may see your premium increase to reflect that increase in replacement costs. The good news is that when insurers raise their premiums because of inflation, they are required to only raise them as much as necessary to cover the cost of rising prices; if prices go down, their premiums should go down too.

Still confused? That is okay! It is a topic that confuses even economists. Lets looks practically at how these inflated costs are effecting your home and auto policies.

Home inflation factors include:
  • 26% increase in building material cost

  • 88% of firms experiencing project delays

  • 89% of contractors having difficulty finding workers

  • 94% of Fortune 100 companies report supply chain disruptions

Of course, it may make immediate sense that material cost would effect the overall cost of a construction project but it may be less obvious to consider that project delays caused by worker shortages & supply chain disruptions, when related to an insurance claim, can mean longer time in temporary housing for the displaced homeowner. This relates to increased need in Loss of Use coverage and higher total costs to completely replace a property.

Auto Inflation factors include:
  • 15% increase in repair costs

  • 12% increase in new car prices due to limited inventory

  • 40% increase in used car prices

  • 8.2% increase in hourly labor

  • 30% increase in rental car costs

Much like with home insurance, it is immediately apparent that an increase in the cost to repair a vehicle would effect a claim payout but there are additional factors effecting this type of policy. Typical auto policies payout on claims based on the Actual Cash Value of the vehicle at the time of loss. As used car prices increase so to does the ACV. This can result in higher total loss payouts. The problem with that is that new car prices are inflated and inventory is limited. Increased labor costs and rental car costs are also ultimately resulting in the total cost repairs in 2022

Insurers review and predict market environments and expected costs annually when setting rates. This is a careful balance in order to be as desirable to insureds like you who are looking to place coverage and profitable enough to be a responsible business and maintain their commitment to insuring your property no matter the inflationary environment!

How do I make sure my policy keeps up with inflation?

Good news, your auto policy will pretty much automatically keep up with inflation. However, given no other changes to your policy, tickets or claims in since the last renewal, it would still be wise to budget for an increase when your policy renews. One exception to consider would be the rising costs of rental cars. Your prior limits may no longer be sufficient to provide the vehicle you need if you are to be involved in a covered loss.

For home policies there is more to consider. Most pressingly, the rising replacement costs means that the Dwelling Coverage (AKA Coverage A) may no longer be sufficient. For example: a policy with $500,000 in Coverage A may now need $600,000 in coverage due to the increase cost of materials, labor and the other factors discussed above. On most policies, Coverage A directly impacts the other base coverages because they are based on a percentage of that number. Therefore, when your Dwelling coverage increases, it may sufficiently increase the other necessary coverages on your policy like Oher Structures & Loss of Use. It is important to note that everyone has individual needs in terms of their insurance protection which is why it is crucially important that you have your policy reviewed annually by your trusted Oklahoma Independent Insurance Agent for personalized advice.

How can I find savings?

When reviewing your policy with your trusted Cornerstone Insurance Agent, consider increasing your coverage to avoid any potential inflationary gaps. Don't forget to mention any important changes like renovations or purchases like pools, trampolines & pets.

Just because your dwelling coverage needs to increase does not mean we cannot look for savings!

Consider Increasing your Deductible. This can directly lower your annual premium but make sure to keep this figure at a number that would be manageable for your budget if you were to need to file a claim.

Review your policy for discounts! Many auto carriers offer a telematics based app that offer discounts based on driving activity. If possible, payment in full can also be a significant discount. There are numerous available and the same types of discounts are available at most large carriers.

Consider Bundling your policies at the same carrier. While all discounts are good discounts, the Bundle discount stands above the rest as commonly the steepest available. Not only is it simpler for you to manage policies with the same carrier it can result in significant savings! Ask your agent about bundle quotes today!

Most importantly, when you write you select an Independent Insurance Agency like Cornerstone Insurance Group, our knowledgeable team can shop your policies with multiple carriers and review for all possible discounts to help ensure you are placed with a policy that offers the coverage you need at a competitive premium.

Credit to The Hanover Insurance Group for the helpful infographic!


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