Here’s a story you might relate to: you’re at your local grocery store and you notice that the price of your favorite snack item has spiked by a few dollars. You might think it’s a one-time thing, but then milk, bread, and butter follow the same pattern. Inflation doesn’t just affect your grocery bill; it affects property rates and overall living costs. Homeowners are facing higher insurance rates due to inflation and an increase in severe weather events that cause damage. Because of this, insurance providers are paying more for property damage claims due to rising material costs, labor shortages, and supply chain disruptions.
Before assuming that your insurance rates have increased just for the insurer’s benefit, keep in mind that inflation results in higher costs across the board and affects the entire insurance industry.
The impact of inflation on insurance
Inflation means the buying power of a dollar is diminished or is worth less. This means that insurance premiums won’t cover as much as they used to, and policyholders won’t be able to afford the same amount of coverage they once had. There are many factors that go into determining an insurance premium, and some can be hard to understand if you aren’t an insurance professional. For home and auto insurance coverages specifically, a determining factor is looking at what it costs to repair or replace homes and vehicles.
Let’s break it down: inflation causes items to cost more, from a carton of eggs to getting a new set of tires on your car. So, if the materials needed to repair your home or car cost more, that means insurance companies have to pay more for your claim. Along with a higher cost, shortages in manufacturing affect the time it takes to repair items, leading to a higher cost. Since the insurance provider has to pay more, they likely have to adjust their rates in order to cover future losses. Add all of these disruptions together and you’ll get higher insurance rates.
How are homeowners affected by inflation?
Higher interest and property rates make it challenging for families and first-time buyers to find homes in their budget. On top of higher overall property and mortgage rates, homeowners are faced with increased insurance rates as well. However, inflation isn’t the only factor that can make your insurance rate higher; supply chain disruptions also play a part. With a limited availability of resources, the cost of building materials increase. Due to the higher cost associated with rebuilding and repairing damaged homes, insurance providers have to adjust their rates. This creates a ripple effect: shortages in materials and increased construction costs result in higher insurance premiums/rates for policyholders.
Severe weather plays a part in higher rates
When you hear the phrase “severe weather,” you might think about tornados, tropical storms, and hurricanes. While those natural disasters are known to cause extensive property damage, recent spring storms producing high winds, heavy rainfall, and hail also contribute to damage. Every year, nearly 1 in 35 insured homeowners file a property claim due to wind or hail damage. The increased frequency of severe weather events is causing insurance companies to pay more in weather claims. Because weather is unpredictable, insurance providers must brace for damage during seasons of heightened weather events. To help mitigate the expenses that come with weather damage, most providers are adjusting their rates to account for a higher number of claims.
Other factors that affect your insurance
You may wonder why your insurance premiums seem to fluctuate every term. Chances are, that price difference is largely due to inflation. For homeowners, shortages in the workforce also have an impact on the cost of repairs. Let’s say you hire a contractor to do some work on your house, and they charge an arm and a leg for a few hours of work. The price you see is likely due to key factors such as lack of skilled employees, increased material costs, and high demand for contractors. Aside from homeowners insurance, the auto sector has also experienced higher rates.
High-tech auto features like safety controls, advanced software, and driver assistance systems in cars have made prices significantly higher. Shortages in computer chips and skilled labor not only result in higher sticker prices of vehicles, but a higher price every time you go to the mechanic for routine maintenance. If cars and their parts are more expensive to manufacture, that means repairs will be more expensive for both the insurance provider and the customer.
Looking for ways to save?
Most insurance companies offer ways to save on your insurance premium. With legacy programs and bundling options, saving on your premium just got easier.
Bundle your policies
Bundling is when you have more than one insurance policy with the same company. For example, if you have a homeowners and auto insurance policy with Alfa®, you can bundle your policies and save money. The more policies you have, the more you can save.
Discover available discounts
Typical discounts you might see offered by insurance providers are for on-time payments, being claims-free, and being a loyalty/legacy customer. At Alfa, you may be able to save on your home or auto policy by installing safety features in your home, paying your premium in full, being the child of an Alfa customer, or being in a certain occupation. Contact an agent to see what discounts you qualify for.
Adjust your deductible
Opting for a higher deductible may lower your premium. If you increase your deductible, keep in mind that what you pay per-term may be lower, but your out-of-pocket expense to file a claim will likely be higher.
As inflation continues to drive up costs of materials and labor, the future of insurance will likely remain more competitive than ever, which is why it’s important to have a provider you trust. To prepare for changes in your rate, educate yourself on what your coverage includes and continue taking care of your home to reduce the risk of damage. With insurance products that meet your needs, Alfa Insurance® can help you protect what matters most. To get a quote, contact your local Alfa agent.
*This is not an insurance policy. It is intended only to provide a general description of Alfa Insurance® and/or its product lines and services. An actual policy contains the specific details of the deductibles, coverages, conditions and exclusions. Your Alfa® agent can explain the policy and benefits and answer any questions you may have before you buy.