Rising material costs also known as inflation, supply chain disruptions and climate change are combining to drive homeowner premiums up an average of 4% according to Triple-I, the Insurance Information Institute. The same economic impacts, except substitute driving habits for climate change, are raising car insurance premiums. Here is an explanation of what is driving these rate increases and what you can do to impact your homeowner and car insurance premiums.
Inflation
Annual homeowners insurance premiums rose 11.4% between 2017 and 2020 according to S&P Global Market Intelligence. During that same time period inflation rose 5.6% per the CPI. Rate increases for auto insurance have varied from 3% to 12%. Homeowners insurance is based on replacement cost. “We want to rebuild, to replace what you had before. We try to estimate that on the inflation factor. But when you have such an abnormal rate of inflation, those automated processes may not always keep up.,” said Karen Collins, American Property and Casualty Insurance Association.
Supply Chain Disruption
When the pandemic hit, lumber producers feared a repeat of the Great Recession so they cut production and unloaded inventory but the opposite happened, demand soared. The price of lumber spiked to $1,500 per thousand feet of board in March 2021, a 400% year-over-year increase. Fortunately prices have settled down to $900 per thousand board feet but supply chain bottlenecks in other areas have kept residential construction prices up about 19% year-over-year according to Inquirer.com.
Labor shortages of mechanics and semiconductor supply chain disruption were two of the main drivers behind car insurance premium inflation. While the CPI rose 7% from December 2020 to December 2021 prices for new cars rose by 11.8% over the same time period and used cars saw a 37.3% increase reported BankRate.com. This dramatic increase in the price of cars meant every repair was significantly more expensive as well.
Climate Change
The devastating winter freeze in Texas, Hurricane Ida, expected to rank among the five costliest hurricanes in U. S. history, and the losses from the tornadoes that ripped through eight states in early December 2021 all contributed to a rise in homeowner insurance premiums. When natural disasters impact a wide area the demand for materials and labor puts pressure on prices leading to inflation. A vicious circle of increasing costs.
Changes in Driving Habits
The Highway Traffic Safety Administration reported an 18.4% increase in fatal crashes during the first six months of 2021 compared wot the first six months of 2020 – the highest percentage increase on record. Your premium depends on your individual rating factors like the type of vehicle you drive, your driving and claims history and the coverage types and levels you choose, but as Mark Friedlander from Triple-I says, “Even if you don’t make a claim, an increase in the volume or cost of claims from other drivers can boost auto insurance rates for all consumers in your city or state.”
Reducing your Homeowner and Car Insurance Premiums
1. Shop around. It pays to comparison shop.
2. Opt for a higher deductible. On a homeowner’s policy raising your deductible by $1000 may save you as much as 25% on your premium.
3. Bundle your insurance policies. Discounts range from 5% to 15% if you purchase multiple policies from the same insurer.
4. Seek out discounts. Good driving records, age, employment status and credit score can get you as much as a 10% discount from some companies.
Are you an actuary interested in the P&C Industry? Contact Smith Hanley Associates‘ Actuary Recruiter, Rory Hauser at rhauser@smithhanley.com.
