The Lingering Effects of Inflation: A Closer Look at Home and Auto Insurance Rates
Despite the nationwide drop in inflation, its effects are expected to last for quite some time. Economists predict that it could take years before we see any significant relief in our pockets. One clear indication of this is the rise in home and auto insurance rates across the country, particularly in states with a high cost of living such as New York, New Jersey, and California.
How inflation affects insurance rates
The main driver of these increases is inflation, particularly in economic segments that impact insurance rates. According to Greg F. Anderson, the agency owner of the Anderson Insurance Agency in Rockville Centre, the industry began to experience sharp rate increases and tighter underwriting restrictions starting in late 2022 and continuing into 2023. This was due to higher claim payouts for historically similar incidents, which both auto and property coverage rate increases have in common. Anderson believes that segmented inflation is the root cause of increasing insurance rates.
The Impact of supply chain issues on the insurance industry
Supply chain issues affecting the automobile market and construction industry were the first signs that inflation challenges were looming for insurance companies, according to Anderson. While these issues affected car prices, car repair prices, and construction prices quite quickly, insurance companies didn’t feel the impact until they started paying claims from policyholders, which can take months or even a year. The phenomenon of working from home further complicates projecting claim payouts in real time.
As higher claim payouts persist over time, insurance companies realize they may not be charging the correct premium for the coverage they offer their customers. Building costs, including labor, are also factors in premium costs, as material and labor costs are significantly higher compared to pre-2020. Coastal exposure on Long Island, coupled with higher claims payouts, has also led to rising costs from insurance companies’ reinsurance.
How insurance companies are approaching the problem
Insurance companies have two main levers they can pull when facing higher costs and lower profits: tightening up underwriting and increasing rates. Underwriting involves deciding if someone should be offered a policy by weighing past claims, credit profiles, driving records, and other risks associated with the potential customer. Insurance companies are expected to be much more selective than before when issuing new policies. On the other hand, insurance companies are regulated by the State Department of Financial Services and must have their rates individually approved by the state. Homeowners and personal coverage, such as auto, are most impacted by rate increases.
From 2022 to 2023, car insurance rates have gone up 14% across the country, with the national average cost for full coverage for a car at $2,014. In New York, the average is $3,139. Home insurance premiums in New York increased by 8% from 2021 to 2022.
During periods of uncertainty, it’s beneficial to have someone who can provide straightforward advice. Anderson emphasizes the importance of building trust with clients as an insurance agent. As an agent, he becomes privy to the details of his client’s lives, making the trust and relationships with clients critical during challenging times.