Inflation baked into 2023 insurance rates

The US inflation rate fell to 6.5% in December 2022, according to Consumer price index (CPI) from the US Bureau of Labor Statistics (BLS) with 7.1% in November. This is a slight drop from 7.0% reported in December 2021 and 3.9% in 2020. The lingering economic impact of Covid, disruptions to supply chains, changes in employment and the war in Ukraine have contributed to this rise in inflation over the past few years. years, although last December was the sixth straight month of slowdown since June 2022.

However, that doesn’t change the shock for policyholders receiving auto and home coverage renewals. Building materials for houses were more expensive, shortages of wood chips increased the price of new cars and car repairs, and labor shortages in the auto industry increased the costs of both home repairs and car repairs, eventually leading to higher premiums.

auto insurance
According to the new BLS Vehicle Index, which is part of the CPI, the 12-month percentage change in December 2022 was 5.9%, down from the 7.2% we saw in November. In addition to problems with the new car supply chain and rising prices for auto parts, a shortage of technicians continues to slow down car repair processes. TechForce Foundation Technicians Supply and Demand Report 2022 shows a continuation of a multi-year decline, with overall employment for collision response technicians down 0.7% this year.

chip shortage continued throughout 2022, leading to further vehicle and repair cost overshoots seen in 2021. Increasing demand for auto parts and problems in the supply chain are also exacerbating the cost of vehicles and the repair process.

In October 2022, the Property Accident Insurance Association of America (APCIA) published the data in their article: “The new normal? Auto insurers continue to fight inflation,” and states: “The rapid rise in inflation continues to drive up auto insurance losses and combined ratios. Claims inflation continues to rise faster than the core consumer price index, well outpacing premium growth.”

To make it easier for policyholders to increase rates, some insurers offer discounts through usage-based insurance and personalized insurance. telematics data. TransUnion “Quarterly Report on Trends and Prospects for Personal Line Insurance”, Published in May 2022, the results of the second quarter show an increase in the use of telematics by consumers: from 49% to 65% of customers choose a telematics policy.

Homeowners Insurance
Policygenius Home Insurance Pricing Reportpublished in July 2022 shows that 90% of US homeowners experienced an increase in their reported annual premiums from May 2021 to May 2022 with an average increase of $134, and premiums rose by 12.1% in May 2022 compared to the previous year.

Allstate shared his financial results for the third quarter of 2022 in November, and press releases state: “Allstate Brand Net Written Premium increased 14.3% year-over-year quarter, driven by a 13.3% increase in average premium due to inflation in insured home replacement costs and the realized rate. increases in combination with the current growth policy by 1.6%.

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At the Institute of Travelers webinar“Inflation, Interest Rates, and the Health of the US Economy: A Conversation with Neil Kashkari, President and CEO of the Federal Reserve Bank of Minneapolis,” October 19, 2022, Kashkari shares his thoughts on raising interest rates and the economy.

“We know how interest rates work, they affect certain sectors of the economy before the rest of the economy. So these high-priced items that people usually have to borrow money for for a house or car, we know they’re affecting Mortgage rates have risen from about 3% for a 30-year mortgage to 7% recently. This has a strong impact on buyers who want to take out a mortgage,” says Kashkari.

Homeowner Insurance Readiness Reportreleased by Goosehead Insurance Inc. surveyed 2,000 homeowners in the United States and reported that some homeowners are opting for less coverage due to inflation and rising prices – 57% of homeowners would opt for less coverage in their home to save money . insurance than what is recommended, and 31% answered that they were buying the cheapest insurance company possible.

Brian Pattillo, vice president of strategy at Goosehead Insurance, writes: digital insurance, “Inflation affects every aspect of our lives, including home insurance. Due to the increase in the cost of materials and labor, insurance premiums are being forced to adjust to keep up with the additional funds that would be paid out in the event of a claim. As a result, there has been a huge change in how consumers think about and buy their home insurance.”

According to the report, just over half of homeowners, 52%, found out they were paying more for insurance coverage than they needed to, and 76% of respondents also say they would change their insurance coverage if they found themselves paying for more coverage. than it was necessary. they needed.

“To ease the financial burden that many homeowners face, insurers need to instill confidence in their customers by equipping them with the knowledge and insight they need to make informed decisions, while also providing a simpler and streamlined selection process,” writes Pattillo. “Independent agents can also emphasize the value of shopping to find the best home insurance for their client’s needs. While it’s natural for consumers to want to stick with the carrier they’re familiar with, other carriers may offer the same (or better!) coverage at a better price. The ability to provide different quotes is especially important in this market. Independent agents may also have access to useful discounts that consumers are unaware of, such as private flood insurance options or savings packages.”

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