By: Ben Cavallo, CIC, AAI, CISR
Reviewed By: Keith J. Signoriello
Together with partner Keith Signoriello, Ben Cavallo is the principal and co-owner of C&S Insurance, headquartered in Mansfield, Massachusetts.
As the global economy grapples with the current inflation crisis, the insurance industry has not been immune to rising costs. The impact of inflation on insurance rates is a topic of increasing concern for insurance companies and consumers alike.
Inflation is the sustained increase in the price level of goods and services across the economy, and it has far-reaching effects on various industries, including insurance. Periods of high inflation can result in insurance companies experiencing higher claims payouts and operating costs, leading to more expensive premiums for the consumer. As a result, some customers may have to drop their coverage or switch policies to save on costs.
Continue reading as we analyze the correlation between inflation and insurance costs, exploring the reasons behind rising rates and how inflation affects insurance companies and their customers.
Why Are Insurance Rates Going Up?
What Are Insurance Industry Averages in 2023?
How to Counteract Rising Insurance Costs Associated With Inflation
Why Are Insurance Rates Going Up?
Inflation is a pervasive economic phenomenon that affects nearly every industry, and the insurance sector is no exception. Due to its reliance on various other industries, the insurance marketplace is especially prone to inflation-related cost increases. In 2023, several factors are contributing to the rise in insurance rates, including:
- Housing and labor costs
- Microchip shortage
- Healthcare costs
- Diminished buying power
Housing and labor cost increases have resulted in higher claims payouts for property and casualty insurance. The rising cost of construction materials and labor has led to higher repair and replacement costs for damaged property, forcing insurers to raise premiums to cover these increased costs.
Secondly, the microchip shortage has had a profound effect on the auto industry and subsequently has also negatively impacted the insurance industry. The chip scarcity means increased costs for new cars, which in turn, results in higher insurance premiums. Additionally, auto repair costs have increased due to the higher cost of materials and labor, leading to increased claims payouts.
Healthcare costs are also trending upward and contributing to the overall rise in insurance rates. Medical expenses, such as hospital stays and prescription drugs, continue to increase, resulting in higher health insurance premiums.
Lastly, inflation diminishes the buying power of money, which means that premium payments no longer go as far as they once did. As a result, insurers are raising rates to keep up with the increasing costs.
What are Insurance Industry Averages in 2023?
Inflation rates in the United States have steadily increased since the 1950s, except for the period immediately following the 2008 financial crisis. As a result, insurance costs have also been progressively rising over time. More recently, the insurance industry has witnessed a surge in premiums due to higher expenses associated with medical care, auto repair, and other services.
According to Forbes, the average full-coverage auto insurance premium in the United States in 2023 is $1,601. This represents an increase of about 17% since 2020. The increase in premiums is partially attributed to rising inflation, which has increased the costs of materials and labor required for auto repairs and maintenance.
Similarly, the uptick in inflation has also impacted health insurance premiums. According to the Kaiser Family Foundation, the average annual premium for employer-sponsored family health insurance in 2022 was $22,463. This represents an increase of 20% since 2017 and is largely due to rising healthcare costs and increased utilization of medical services.
Furthermore, rising inflation has also affected home insurance premiums. According to the Insurance Information Institute, the average homeowners’ insurance premium in the United States in 2021 was $1,398 per year. This represents an increase of about 12% over the 2017 average due to the rising cost of building materials and labor costs for home repairs and renovations.
How to Counteract Rising Insurance Costs Associated With Inflation
The impact of inflation on insurance premiums can be concerning for both consumers and businesses. Fortunately, there are ways to counteract these rising costs and potentially reduce premiums. Here are a few tactics to consider:
- Discounts: Many insurance companies offer discounts to their customers. At C&S Insurance, we provide discounts for things like safe driving, policy bundling, and installing home security systems. These discounts can help lower your insurance premiums, so it’s worth checking to see if you’re eligible.
- Deductibles: Increasing your deductibles can be another effective way to lower your insurance premiums. By opting for a higher deductible, you’re taking on more risk in case of an accident or incident, resulting in insurance companies requiring a lower premium.
- Payment plans: Opting for automatic payments or paying your policy in full can also help reduce monthly premiums. We offer a range of payment options to help make your insurance more affordable.
If you’re a Massachusetts resident, you can take advantage of additional state-specific resources to help you lower your insurance premiums. For example, the Massachusetts Division of Insurance provides valuable information and resources to help consumers navigate the insurance market. Additionally, Massachusetts offers a low-cost auto insurance program for eligible drivers who meet certain income and eligibility requirements.
The C&S Insurance Difference
At C&S Insurance, we understand the impact of insurance inflation. Our carriers are taking 10-20% rate increases this year — with more increases projected for next year — and are not budging with credit on policies if requested. Despite this, we work hard to keep our rates competitive and fair. While all carriers are seeing property rate increases, our rates are still in line with industry averages.
To help our customers find lower rates in the face of high inflation, we recommend higher deductibles as a way to offset some of the rate increases. Our agents can work with customers to find the right balance between deductibles and premiums to meet their specific needs.
At C&S, we pride ourselves on providing exceptional service to our clients. Our agents go above and beyond to understand client needs and provide personalized solutions that meet those needs. This is reflected in our high retention rates and the loyalty of our customers.
In terms of price, we strive to provide competitive rates without sacrificing quality or service. Overall, C&S Insurance is committed to providing our clients with the best possible insurance solutions in the face of rising inflation and other industry challenges.
Contact us today to learn more about how we can help you counteract rising insurance costs associated with inflation and keep your premiums affordable.
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