Insurance carriers must be prudent to the current state of inflation when determining and filing their base insurance rates. The overall costs of goods and services have a direct impact on the cost of insurance premiums as insurers utilize various sectors of the economy to settle claims and make policyholders whole following a loss. As a rule, insurers must adjust premiums amidst inflation to sustain increasing costs associated with settling claims.

Key factors that have had an adverse effect on increased insurance premiums to date include:

Housing Material Costs

Lumber and other construction materials have increased in price due to less availability, resulting in a higher overall cost to build homes. According to the latest Producer Price Index (PPI) report the cost of softwood lumber, a primary building material in new residential construction, remains 22.7% above the 2019 level as the index skyrocketed 84.6% between 2019 and 2021. 

Vehicle Repair & Replacement Costs

As vehicles continue to advance their materials and technology, they have become more expensive to insure and repair. According to the APCIA, motor vehicle parts and equipment costs have increased almost 24% since September 2019. The surge in prices of auto parts, exacerbated by supply chain disruptions and material shortages, has sent shockwaves through the insurance industry.

From minor fender benders to major collisions, the expense of restoring vehicles to roadworthy condition has soared, straining insurers’ reserves and prompting a recalibration of premium rates.

Social Inflation

The specter of social inflation casts a pall over the property and casualty insurance industry, amplifying financial fallout from liability claims and litigation. Societal trends including increased number of litigations, juror sympathy, and escalating legal costs pose a formidable challenge to insurers’ profitability and solvency. This results again in a need to offset common trends affecting premiums with increased rates.

Overall Cost of Doing Business

Insurance companies do business with a variety of vendors to accomplish their business goals. From increased costs associated with postage to annual automatic increases included in a variety of service contracts, insurers are feeling the heat alongside other businesses given the current economic conditions.

Looking for Ways to Lower Your Premium? 

Ways to Save on Homeowners Premiums

• Bundle with your auto policy and save
• Explore payment options like automatic payments or paying for the year in full
• Consider a higher deductible

Ways to Save on Auto Premiums

• Bundle with your homeowners policy and save
• Explore payment options like automatic payments or paying for the year in full
• Ask your local agent about discounts for good students, defensive driving certificates, and anti-theft devices
• Receive discounts for being three- or five- years incident free
• Consider a higher deductible

The inflationary currents demand a strategic response grounded in innovation, resilience, and foresight. Insurers are using prudence to safeguard their financial stability and deliver on their promise of protection in an uncertain world. As the current hard market softens, insurance rates will do the same.