Inflation set to force higher home and auto insurance rates – InsuranceNewsNet

There really doesn’t seem to be any good inflation news for consumers on the horizon. Now, when they receive their home and auto insurance renewal contracts this year, they will likely find that their rates have increased significantly.

It’s difficult to determine exactly how far rates will increase, as they vary by location. But analysts generally believe the average increase will be between high single digits and low double digits.

It may not seem like much, but analysts say it’s just the beginning. Some expect such increases to occur every year for the next few years.

“With the American consumer already strained by worsening inflation, a hike in their auto and home insurance policies will be very unwelcome,” said Joshua Shanker, an analyst at Bank of America.

In the 12 months to May, consumer inflation rose 8.6%, the fastest pace since December 1981.

Inflation and weather events push up home insurance rates

Two factors are combining to push up homeowners insurance rates, including the increase in extreme weather events over the past five years and inflation.

In 2021, the United States recorded 20 weather/climate disasters with losses exceeding $1 billion each, according to the National Centers for Environmental Information. This compares to the inflation-adjusted 1980-2021 annual average of 7.7 events and the past five-year (2017-2021) annual average of 17.8 events. These are all losses that must be paid.

Insurers typically transfer some of that risk to reinsurers, but with the increase in catastrophic events, reinsurers are “saying enough and raising rates,” said Matthew Carletti, an analyst at JMP Securities, a corporate citizen.

“So insurers have to pay more for that protection and pass it on to consumers,” Carletti said.

Inflation, which has reached its highest level in 40 years, also takes into account higher renewal rates.

During the pandemic, not only has the housing market exploded, but shortages have arisen, from lumber to oil (used for things like asphalt and roofing products) and even workers to build, repair or renovate homes. . All of this has driven up the cost of rebuilding a home in the event of a disaster, a major factor in home insurance pricing.

“The cost of home repairs and building materials probably won’t change just because the price of a new mortgage goes to 6%,” Shanker said. “And, it would appear that underwriting margins, or lack thereof, for home insurance are the worst in a decade or more.”

This is another reason why insurers are raising their prices.

No more inflation, need for

drive speed on auto insurance rates

Auto insurance rates are also being boosted by rising costs.

Not only have the price of used cars skyrocketed during the pandemic for a variety of reasons, including a limited number of new cars for sale and a strong preference for road trips when flights were limited, but the prices of hand Labor and parts also surged due to shortages.

Add to that more accidents that occurred as vehicle miles traveled returned to pre-pandemic levels in the spring, and you have a recipe for disaster.

“Suddenly you have people with more expensive cars driving, and then they’re driving like crazy, and there are more accidents,” Shanker said. “It’s obvious that this had a deleterious impact on (underwriting) margins in the personal automobile market.”

If I combine the house and the car,

can I take a break?

Unfortunately, the price increases are also affecting consolidators, analysts say.

Usually, insurance companies may raise the price of one at the expense of the other to retain consolidators, which tend to be more profitable over time due to their greater likelihood of staying with the insurer. .

“Consolidators will likely find that the price of their auto and home policies increase in tandem, and the insurer has little ability to compensate for this increase by limiting the price of another part of the policy package,” said said Shanker.

He estimates that bundlers could see a 10% increase in renewal rates this year. This “potential sticker shock for many customers, for many of the best bundled customers, will make them buy a better deal,” he said. Numbers.”

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Justin D. O'Neill