Inflation, inflation, inflation. The word that truly feels like the buzzword of 2022. Many consumers have had no claims or infractions in the past 12-24 months, yet they see their insurance rates increase. This is obviously frustrating and annoying. But why is it happening?
What is impacting insurance premiums?
One of the largest inflationary impacts has been from the auto industry. Many are aware of the supply chain challenges the auto industry is faced with. Parts suppliers can’t get replacement parts, dealerships can't get new vehicles, and the availability of used vehicles has made the market quite challenging.
You might be asking yourself: okay I get that, but how does that impact insurance premiums? The problem begins with an increased number of drivers on the road. During peak pandemic years, many workplaces either shutdown operations, laid off employees, or had their in-person employees switch to remote work.
Obviously, this major shift meant fewer vehicles on the road and subsequently meant fewer accidents. But, as workplaces begin to reopen and economy is in a recovery phase, employees are returning to their place of work, often by vehicle. More cars on the road equals a higher likelihood of automobile crashes. Which brings us to where the issue is occurring.
Normally, when a vehicle is in an accident, an adjuster will either send the vehicle for repairs or write off the vehicle for a cash settlement. When a vehicle is sent out for repair, a number of factors are driving up the price. A shortage of skilled labour in autobody repair is driving up wages for the industry, thus increasing the cost. A lack of on-hand replacement parts is causing repair shops to need to order parts which come with large delays, thus increasing the cost.
In order for people to still get around while their car is being repaired, they need a rental car. Once again, there is a shortage of rental cars which makes renting one difficult if possible at all; thus increasing the cost. Considering the delays in vehicle repairs, those who have rental vehicles often need them for longer than usual, thus increasing the cost. These are only some of the factors impacting the increased cost of vehicle repair.
In the event that a car needs to be written off, you then need to look at the replacement value for a vehicle. With dealerships still struggling to get new vehicles in, the ones they have in stock will sell at or above list price. In the used market, a shortage of inventory has shot up the value of vehicles in inventory. This makes replacing a written off vehicle more expensive, thus increasing the cost.
Aviva estimates that inflation from auto damage has gone up approximately 15% in 2022. When claims are costing more, rates go up to match the cost.
Similar issues can be seen in other facets of insurance. When there is a major loss in someone’s house or apartment, nearly identical problems arise. Delays in supply chains have made repair materials more difficult and expensive to acquire. People are kept out of their homes for longer periods and the cost of temporary housing is also increasing.
Market Insider magazine expects the housing market to have a "soft landing" rather than crash as many economists may have expected. A soft landing indicates that supply will steadily increase while demand will steadily stabilize. In this case, the price of housing will hold relatively stable. If the price were to fall, the price of materials would also fall (most prominently lumber). The soft landing will cause the price of materials to once again rise.
Market Insider is predicting an 18% increase in price of lumber if the housing market has a soft landing. An increased cost of materials, coupled with longer lead times will result in more expensive claims. More expensive claims result in a higher premiums across the board.
Ratehub estimates that home replacement costs have increased 12.9% and maintenance costs have increased 2% as a result of 2022 inflation.
What can you do stave off Insurance inflation?
At Armour we do our very best to get our clients the best price on the coverage they need. Using automatic policy review, we re-evaluate your insurance policy at the end of its policy. As a broker, we check the coverage you have with the price you’re paying with your current insurance provider. We then check all the insurance companies we work with to get you the best price available on the market. We want our clients to be getting the best value on the market, and automatic policy review makes that possible.
If you have any questions about automatic policy review, please feel free to contact one of our brokers.