There really doesn’t seem to be any good consumer inflation news on the horizon. Now, when they get their home and auto insurance renewals this year, they’ll likely find that their rates have gone up significantly.
It’s hard to say exactly how much rates will increase because they vary by location. But analysts generally think the average increase will range between high single-digit and low double-digit percentages.
That might not sound like much, but analysts say it’s just the beginning. Some expect similar increases to come every year for the next few years.
“With American consumers already strained by compounding inflation, increases in their auto and home insurance policies will be highly unwelcome,” said
In the 12 months to May, consumer inflation rose 8.6%, the fastest pace since
Inflation, weather events driving up homeowners insurance rates
Several things have combined to drive up homeowners insurance rates, including the increase in extreme weather events over the past five years and inflation.
Insurers typically pass on some of those risks to reinsurers, but as catastrophic events increase, reinsurers are “saying enough is enough and raising rates,” he said
“So insurers have to pay more for that protection and pass it on to consumers,” Carletti said.
Also a factor in the higher renewal rates is inflation, which has jumped to a 40-year high.
During the pandemic, not only did the housing market boom, but there were shortages of everything from lumber to oil (used for things like asphalt and roofing products) and even workers to build, repair or remodel homes. All of this has increased how much it will cost to rebuild a house in the event of a disaster, a major factor in pricing homeowners insurance.
“The cost of home repairs and building materials probably won’t change simply because the cost of a new mortgage hits 6 percent,” Shanker said. “And it looks like insurance margins, or lack thereof, for homeowners insurance are at their worst in a decade, if not more.”
This is another reason for insurers to raise prices.
More inflation, the need for accelerated driving on auto insurance prices
Car insurance rates are also getting a boost from higher costs. Not only did used car prices jump during the pandemic for a variety of reasons, including a limited number of new cars for sale and a strong preference for in-flight travel, but labor and parts prices also jumped due to shortages.
Couple that with more accidents occurring as vehicle mileage returned to pre-pandemic levels in the spring, and you have a recipe for disaster.
“All of a sudden you have people with more expensive cars driving, and then they drive like maniacs and there are more accidents,” Shanker said. “Obviously this has had a detrimental impact on (insurance) margins in the passenger car market.”
If I combine the home and the car,
can i take a break
Unfortunately, price increases are also coming to package companies, analysts say.
Typically, insurance companies can raise the price of one at the expense of the other in order to retain bundled companies, which tend to be more profitable over time because of their greater likelihood of staying with the insurer.
“Bundlers are likely to find that the price of their auto and home policies go up at the same time, and the insurer has little opportunity to offset the increase by capping the price of another part of the policy package,” Shanker said.
He estimates that package sellers could see a 10% increase in their renewal rates this year.
That “potential sticker shock for a lot of customers, for a lot of the best bundled customers, will cause them to shop around for a better deal,” he said. “These high-value, multi-policy bundles rarely shop in large quantities.”