There doesn’t seem to be any good news about consumer inflation on the horizon. Now, when they receive their auto and homeowner’s insurance renewal contracts this year, they will likely find that their rates have gone up significantly.
It’s hard to say exactly how much the increase will be because it varies by location. But analysts generally estimate that the average increase will range from high single-digit percentages to low double-digit percentages.
This may not sound like much, but analysts say this is just the beginning. Some expect such increases to come every year for the next few years.
“With the American consumer already nervous about compound inflation, an increase in auto and home insurance policies would be unwelcome,” he said.
In the 12 months leading up to May, consumer inflation rose 8.6%, the fastest pace since then.
Inflation and weather events boost homeowners insurance rates
Two things combine to raise homeowners’ insurance rates, including the rise in extreme weather events over the past five years and inflation.
Insurers usually pass on some of this risk to reinsurers, but as catastrophic events increase, reinsurers are “saying enough, and raising rates.”
“So insurers have to pay more for that protection and pass it on to consumers,” Carletti said.
Also taken into account is inflation, which has risen to its highest level in 40 years.
During the pandemic, not only has the housing market boomed, but shortages have emerged of everything from wood to oil (used in things like asphalt and roofing products) and even workers to build, repair or remodel homes. All of this increased the cost of rebuilding a home in the event of a disaster, a major factor in pricing for homeowners insurance.
“The cost of home repairs and building materials is unlikely to change just because the new mortgage rate is up to 6%,” Shanker said. “And the underwriting margins, or lack thereof, for homeowners’ insurance appears to be the worst in a decade, if not longer.”
This is another reason for insurance companies to raise rates.
More inflation, the need for speed driving on car insurance rates
Car insurance rates also get a boost from rising costs. Not only have used car prices skyrocketed during the pandemic for various reasons, including a limited number of new cars for sale and a strong preference for road trips while flying, but prices for labor and parts have also jumped due to shortages.
Add to that, with more accidents occurring as car miles returned to pre-pandemic levels in the spring, you’ve got a recipe for disaster.
“All of a sudden, you have people who drive very expensive cars, and then they drive like crazy, and there are more accidents,” Shanker said. “Obviously, this has had a detrimental effect on (underwriting) margins in the personal car market.”
If you assemble the house and the cars,
Can I have a break?
Unfortunately, analysts say the price increases are coming to collectors, too.
Usually, insurance companies can raise the price of one at the expense of the other to maintain packages, which tends to be more profitable over time due to the higher probability of staying with the insurance company.
“Bundlers are likely to find that the price of their auto and home policies is going up in tandem, and that the insurer has little ability to offset the increase by capping the price of another part of the policy package,” Shanker said.
He estimates that collectors could see a 10% increase in renewal rates this year.
“The potential label shock to many customers, for many of the best collector customers, will prompt them to shop for a better deal,” he said. “These high-value, multi-policy packages rarely shop in large numbers.”
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