Q. How is inflation affecting my insurance premiums?
A. Today’s inflation seems to go from bad news to worse news.
To accurately price policies and better protect policy holders, The Starr Group has always favored the “replace-to-cost” model of evaluating home and property. Written correctly, your home is repaired or replaced regardless of the cost of materials and labor- that’s the good news. The not-so-good news is when the cost soars up, and hence the exposure to the insurance company, it leads to higher premiums. Why?
A recent article in the insurance industry trade publication website PropertyCasualty360 outlined several proof-points to this phenomenon:
- Inflation rates are the highest they’ve been in 40 years (I think we just hit 50 years). According to The Associated Press, the U.S. Bureau of Labor Statistics reported inflation rates in March 2022 at 8.5%.
- Cost of Reconstruction has risen 13.5% since April 2021 and authorities warn that prices may not decrease anytime soon.
- In an effort to stabilize prices and promote employment rates, the Federal Reserve announced its first interest rate hike since 2018.
- 60% of global fuel consumption is in the form of fuel for vehicles. Much of the construction industry relies on the transportation industry to move raw materials to building sites.
- 40% of fuel consumption is used as an ingredient in products which are key to the reconstruction industry: asphalt shingles, furniture, carpets, insulation, paint, tires, plastic parts and containers, plywood, adhesives, epoxies. As the price of fuel rises the price of these items rise as well.
- Labor costs increase 10.4% since April 2021 because of compensating the skilled workers commuting to jobsites.
With much of the population spending an extraordinary amount of time at home for better than 24 months, many homeowners began to reinvest in their properties, repairing, remodeling, or upgrading features. And they’re feeling the pinch of higher labor costs as well:
- Roofer costs are up 12.6%
- Electricians are up 8.5%
- Overall cost to rebuild a property is at minimum 7.14% higher than last quarter!
Other factors affecting volatile construction industry rates include disruption of supply chains, high demand for materials, and panicked purchasing (think toilet paper hoarding in a crisis).
The Starr Group can help make sense of the sudden market shifts by staying on top of monthly pricing updates. If there is an abnormal increase in your premiums (higher than insurance industry average –right now 6% or higher), we will contact you and shop for either better pricing or better value for you.
That is a reminder of our long- standing promise to you in these unprecedented times.