The Economic Climate and its Impact on Insurance
It seems like everything these days is going up in cost. If you’re like us, you’re no stranger to the rising costs of living. According to the US Inflation Calculator, we surpassed 8% in 2022, up from the 4.7% in 2021, a staggering difference from the 1.2% we experienced in 2020. This impacts almost every aspect of our economy, from smaller every day items things like groceries and utilities, to larger long term things like home prices and interest rates. Insurance is no stranger to rate increases through the years, but you might’ve gotten a bill recently and went “What the heck?” and we don’t blame you. Below, we’ll pinpoint some reasons why your insurance premium has been increased in response to the tight economic climate we find ourselves in.
Homeowners:
Building materials have almost tripled in price over the last year, which means not only does it cost more to build a home, it also costs more to rebuild a home. One of the biggest contributing factors in determining homeowners premium rates is what’s called the “dwelling amount”. Basically, that means what the actual building you live in is worth. Whether it’s made out of brick, wood, or stone, that all is taken into consideration. When the components that make up your home start to cost more, your home itself is valued higher. We’re seeing homes that once were valued at $400,000 now require $600,000 worth of coverage for the building itself. It’s important to make sure you’re insured to the correct amount, that way your home can be rebuilt back to its former glory in the event of a total loss.
Climate change causing more wildfires, hurricanes, flooding, and tornadoes are on the rise. We’ve seen homes not in flood zones experiencing more water back-up due to consistent rain and homes farther in from the coast damaged by strong winds from hurricanes. On the other side of cold and wet, we’re seeing more smoke damage to homes in closer proximity to wildfires, and even more fire losses than before. Another big part in determining your insurance rate is your location. With that, insurance carriers and underwriters take into consideration the average number of claims/accidents in that area, and consider how that area will be effected in the future. It’ll cost more to insure someone who lives in a riskier area. Because of the environmental climate, a lot of previously “safer” areas are exposed to substantially more risk, which in turn means your insurance premium will be higher.
Auto:
Vehicle part shortages are becoming commonplace, and because of that it takes longer to fix a car that’s been damaged in an accident. With that, it means you’ll be in a rental car for longer, which your insurance coverage pays for. Not only are parts scarce, but they’re no stranger to an increase in cost along with everything else. Labor costs have also risen, which, along with the cost of the vehicle’s parts, a fender bender that might have only caused $3,000 worth of damage is likely to cause at least $10,000 to fix nowadays.
If you’ve ever been in a serious accident and have gone to the hospital, you understand the shock that may come when you receive the first bill from your stay. Higher medical costs in the country are putting a lot of industries and individuals in a tight position. Insurance coverage for bodily injury is typically at $100,000 per person, $300,000 per accident for the other party. With higher medical costs, insurance carriers are seeing that limit be reached now more than ever. What used to be a $1500 bill for being quickly evaluated in a hospital can now reach upwards of $5000.
We live in a lawsuit happy world as of late. More and more people are opting to sue over an auto accident. With full tort, you can sue for any reason, and more people are opting in to sue as opposed to let it go. More and more people think they’re owed something for the inconvenience of an accident happening, regardless of if they were injured or not. When more people sue over a small accident, your insurance pays for your defense costs, and, if you lose, the amount you’re legally found liable to pay, up to your limit.
Again: location, location, location. Where you live, drive, and keep your vehicles is an important factor in determining your premium rate. The frequency of accidents, break ins, and even thefts have increased across the board. The riskier of an area you’re in, the more your insurance premium will be.
Ultimately, it’s no fun when things go up in cost, but every industry is responding the same way to the rising costs of operating a business. Whether you’re buying groceries, paying your electric bill, purchasing a home, or applying for insurance, you’re likely to see the average price a bit higher than what you may be used to.
The good thing about working with a variety of carriers is that if one carrier doesn’t work with your needs and budget, we can find you one that does. We’re constantly running numbers to make sure that you’re always getting the best coverage for the most competitive price. Whether you’re just starting out in property ownership or a long term investor in home and auto, the Ondik Insurance Agency is here to help protect what matters.
