Will inflation impact my insurance rates?
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Note: this post was originally published on June 29, 2021. It was updated on March 28, 2022.
The short answer is: it’s possible — and somewhat more probable than it was in 2021. But we still can’t be sure. Inflation can be fickle, and it’s hard to predict exactly how you might be affected. Or if an increase will even be significant, this time around.
That said, continuing Covid concerns, coupled with the war in Ukraine (and its effects on energy markets) and ongoing supply chain issues, are all contributing to rising inflation. Rising prices suggest that inflation will again increase by up to 7% this year as consumers contend with the highest rates since 1982. Although the Fed said it would raise rates for the first time since 2018 in an effort to constrain the inflation storm, consumers may still be affected.
Inflation is the rate at which an economy’s price level increases over time. As the price level rises, each unit of currency buys fewer goods. This means that the value of the currency on the whole decreases, even as prices for goods and services continue to go up.
As an example, let’s take Germany’s Weimar Republic in the 1920’s. The economy was extremely volatile owing to high levels of debt incurred during the first world war, along with widespread strikes. So hyperinflation became the norm: If, in January 1923, a loaf of bread cost 250 marks, by November, its price had risen to 200,000 MILLION marks. That’s a ton of money for not very much bread. Effectively, the German mark had been rendered worthless by inflation.
While more and more Americans are shopping, traveling, and dining out, our supply chains haven’t caught up yet. We’re seeing disruptions in everything from the production of computer chips to the timber industry, and they all have knock-on effects. To put it bluntly, when demand exceeds supply, prices rise — and that’s where we find ourselves today.
Moreover, the ongoing war in Ukraine has knock-on effects which impact everything from global energy markets to the distribution of wheat. As consumers, we feel the consequences at the gas station, grocery store, and in our monthly bills.
Since insurance is a service, it’s also subject to the whims of inflation. For certain policies, the consequences of inflation might be factored into the renewal terms. Let’s look at what this might look like with two common policy types: homeowners insurance and auto insurance.
In the case of homeowners insurance, inflation could affect labor and materials costs that providers would need to cover in a payout. It also may change the value of your home, which would affect your policy. We’re already seeing an increase in the price of lumber, for instance. So home insurance companies might need to continue to raise their rates to ensure adequate coverage.
Similar questions plague the auto insurance industry. Last year, inflation crushed markets for both new and used vehicles. Cars themselves are also more complex (again the fallout of the global chip shortage!), so any damage incurred can cost a lot to repair. Because automobile insurance exists to help combat the costs of an accident, anything that “raises these costs is likely to raise rates.”
It’s worth remembering that insurance comes in many other forms, from health and disability policies to renters coverage, and how you contribute to each of these varies. Costs are also location-specific, and inflation isn’t the only factor that can influence your premiums.
And if you’re concerned about your premium increasing, remember that shopping around for rates is the best way to make sure you’re not leaving money on the table. Just create your Marble account, and we’ll help you compare different policies and pricing when you’re ready to shop.