Think inflation, and you probably think of pain at the gas pump or the grocery store checkout. While these day-to-day price rises are most notable, you may be in for a surprise next time you come to renew your home or auto insurance. Average premiums for both are rising sharply. Here’s why the price squeeze is happening and how you can limit the impact.
How Big Are Insurance Price Rises?
Different analysts (using various calculations and estimations) naturally produce different figures, but they all agree on the direction: premiums are rising. These are just a few of the key calculations:
- A Wall Street Journal report cited by Fox Business had “many auto insurers” putting prices up by 6% to 8% last year. That was higher than the 4.9 percent rise calculated by S&P Global Market Intelligence at the start of the year.
- The Bureau of Labor Statistics, cited by Moneygeek, calculated that, on average, car insurance costs rise by twice the rate of inflation.
- Policygenius told CNBC that home insurance was up 12.1 percent in a year.
We don’t know for certain how things will pan out for the rest of 2023. Remember, though, that depending on when your current policy term started, you may not yet have faced the full effect of last year’s rises.
What’s Causing Insurance Price Rises?
General Inflation
Part of the price rises is simply the general effects of inflation. Many of the costs of running a business, such as office staffing, are rising. That inevitably gets fed through to customers.
Specific Inflation Factors
In the auto insurance market, the cost of providing coverage is rising because many of the costs of settling claims are up. These include:
- The cost of providing (or paying out for) replacement vehicles.
- Increasing use of technology in cars, bumping up repair bills after accidents. (Supply chain issues with components such as semiconductors have worsened this.)
- Increasing medical costs for accident victims.
- Higher costs for mechanics’ services.
Meanwhile, insurers face higher costs to repair or rebuild homes thanks to a shortage of construction materials that followed the supply chain shock of the pandemic. (Ironically, lockdowns also boosted demand from furloughed homeowners who had spare time for home improvement projects.) The worst of the shortages appear, but the effects are still being felt.
Risk Factors
We’re still seeing some impact from the return to normal driving levels after many people drove far less during the pandemic. Things are smoothing out now, but more vehicles on the road mean more risks of accidents leading to claims.
As for home insurance, extreme weather events such as hurricanes and deep freezes continue to wreak particularly costly damage to properties.
State Impacts
The effects of inflationary pressures aren’t the same for everyone. Premium hikes vary significantly between states. Insurers often take a state-by-state approach to calculating risk to setting premiums. That means, for example, rates in areas increasingly prone to natural disasters are rising. In some cases, insurers are pulling out of states altogether. That simply leaves rivals free to push prices up with less competition.
How to Reduce the Impact of Rising Rates
The good news is that you aren’t powerless in the face of rising premiums. With the right measures, you can mitigate the worst of the price increases, and in the perfect scenario, you could even eliminate them. These are a few tips to fight back against price hikes:
Independent Agent
Using an independent expert to arrange your insurance can be a great way to get a better deal. At the most basic level, they have the time and the know-how to search through more options to find the lowest price.
It’s not just a matter of cost; value is just as important. There’s no point in switching to the cheapest policy and then regretting it when it doesn’t provide the specific coverage you need. An independent agent can talk through your needs (including risks and costs you might not have thought about) and then get the right deal at the right price.
Raising Deductibles
Having a deductible is always a case of risk vs. reward. The default option might not always be the best balance for you. Consider the following when deciding whether to go for a higher deductible:
- How likely is it that you’ll make a claim?
- Which type of claim (and in what range of amount) are you most likely to make?
- Would your financial position mean you could afford to pay your deductible if needed?
- How big a saving would you make on your premiums by raising the deductible?
Bundling Insurance
Insurers will often lower premiums when you combine multiple forms of insurance policies. In the best case, it can be a win-win: you pay less overall, but the insurer makes more than they would if you only used them for one type of insurance.
Another big benefit is that you reduce the paperwork and administration. In the most extreme cases, you might only have to make a single claim for multiple losses. This could include flooding damaging your home and car. It could also mean somebody breaking into your house to get your car keys and steal your vehicle.
Remember that most insurers offering bundling packages will illustrate the savings compared with their policy rates. The savings may be lower when looking at the best deals elsewhere for separate policies from insurers. You also need to look at the specific terms in the bundled policy to ensure they suit your needs.
The Next Step
At Main Line Risk Management, we make finding insurance easier. We can’t promise you’ll never have to face a premium rise, but we will do our best to help you get the right coverage at the best price. Contact us today, and we’ll be happy to help.
