How Inflation Is Affecting Insurance Rates
The Cincinnati Insurance Companies
With record inflation impacting almost every corner of the economy, it's no surprise that the insurance industry must also raise rates to cover the increasing costs to repair or replace damaged cars and homes. Unfortunately, personal lines policyholders have been hit directly by many of the drivers of high inflation.
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Supply chain issues kicked off a myriad of increases in the cost of auto claims. With auto makers struggling to maintain new vehicle inventory, the cost of new cars as measured by the Consumer Price Index increased 16% from January 2021 to July of 2022. With consumers being unable to find new cars, the demand shifted to used cars, and the impact was even more significant. The Manheim Used Vehicle Index, which monitors used car pricing, spiked nearly 50% from December 2020 to December 2021.
The cost of auto parts also went up, causing vehicle repair costs to increase. Generally, car parts are a stable commodity with just 3% in annual increases from 2017 to 2020. But last year, there was a 10% increase followed by a 12% increase for the first half of 2022 (Producer Price Index).
Homeowners have not escaped the inflation pressures either. New home construction pricing is up 17% from January to August of this year, bringing the total increase from the start of the pandemic to 35% (Consumer Price Index). Looking at individual commodities it’s not hard to see why construction costs are up so much. Lumber pricing more than doubled during the pandemic and despite recent decreases pricing is still up 50% from March of 2020.
Large rate increases are never easy to deliver to policyholders, especially with inflation driving all costs up across the economy. Our rate changes consider both inflationary trends as well as our historical performance, and we do not take lightly the impact this will have on your clients. Our goal continues to be to create long term and profitable growth for you, while maintaining a high level of service. Now is a good time to speak with your clients about ways they can help to mitigate risings costs due to inflation, including water shut-off devices, central fire alarms and enrolling in our RidewellSM program. See Adv. 1608 for more information about home protection credits.
Original Content from The Cincinnati Insurance Company Personal Lines Newsletter - December 2022