If you've been watching the news lately, you're no doubt already well aware of the fact that inflation is on-the-rise. It's grown over the course of the pandemic in particular and, in the opinion of many, has blossomed.
All throughout this period, insurers, in general, were typically slow to raise rates and premiums. This collective tactic was due, in part, to a hope that things would turn around sooner rather than later. However, that approach is now changing and many are already starting to feel it.
Not only are insurance rates rising, but some are also doing so faster than the rate of inflation itself. Likewise, experts see no reversal of this trend anytime soon.
However, this is not necessarily causing alarm. There are a number of important things one needs to understand to properly contextualize this information and make the best possible choices moving forward.
The Situation With Insurance Companies: Breaking Things Down
One of the most important things to understand about this situation is that many insurance companies have said that forbearance during the pandemic was mostly responsible for a delay in responding to spiraling inflation rates. In other words, they would have had they been able to but the circumstances dictated otherwise.
Most major auto insurance providers, for example, increased their rates in either 2021 or in early 2022.
There are ultimately many factors that play a role in rate increases, including but not limited to things like labor shortages, supply chain disruptions, rising prices across the board (particularly when it comes to healthcare and the automotive industry), geopolitical factors, wage increases, lifestyle changes as a result of the pandemic and more.
Since the pandemic has (thankfully) begun to lessen, there have also been more fatal car accidents. This has also caused premiums to rise. Medical costs are on the rise, too, as more people survive those serious accidents due to ever-improving automotive technology.
The Cost of Technology
But while that advanced driver assistance system in your newer vehicle will provide a much-needed level of protection, it will also increase the cost of repairs and parts moving forward.
Many repairers and auto insurance companies will also need to invest in technical education and certifications for their employees to meet the industry's rapidly changing needs. This, too, contributes to increased costs in the short term.
None of this is to say that technology is inherently a bad thing. If you look at the rate of auto accidents from even a decade ago until now, the current situation is far more positive and driver-assistive technology and advanced safety features are a big part of that. It's just that the technology itself - not to mention the years of hard work and innovation that led up to it - plays an impact that most people just don't think about until they see costs begin to climb.
Industry Struggles With Labor
According to some reporters, insurance companies, in particular, are currently facing a crisis due to a general decline in interested people willing to take these positions. It's something that we're actually seeing play out in a wide range of different industries, with the manufacturing sector being perhaps the other big example.
Essentially, insurance companies have more available positions than they have applicants who can fill them. Likewise, many of those applicants may lack the training or special skills necessary to excel in those positions. Because of that, existing employees are being tasked with accomplishing "more with less," creating a negative ripple effect at the worst possible time. All of this is contributing to increased insurance rates and premiums, causing consumers to feel the pain thanks to a situation that insurers aren't necessarily able to avoid.
This, too, is a problem that was only exacerbated due to the pandemic as during the last two years millions of people left the job market for what they thought would be a temporary reprieve only to have it turn into a permanent situation as time went on.
Worker Health Insurance Costs are Unlikely to Increase
Thankfully, not all of this is necessarily bad news. One thing that is giving people a lot of hope has to do with the fact that employers are not really expected to increase worker health insurance costs. Despite the fact that there are always cost-management initiatives going on at most employers, these organizations expect group health plan premiums to rise on average. Meaning that despite rising costs and everything going on in the world right now, employers aren't expecting any major surprises when these plans quickly start to come up for renewal.
This means that experts are not anticipating that employers will increase their workers' share of coverage responsibilities - at least for this year. Obviously, that could all change in the future but for the short-term at least, things appear to be relatively stable in most areas.
Homeowners Rates are on the Rise
One area that experts are paying close attention to has to do with inflation's impact on homeowners' insurance rates - a situation that may be difficult to understand for those uninitiated.
In general, the current pace of inflation will always have an impact on the real (adjusted for inflation) values of a portfolio, along with the income that the portfolio is able to generate and the returns. The impact on liabilities can be more complex because they are inherently less predictable. Because of all this, inflation can have a more significant effect on those insurers with longer tail risk.
Note that "long tail risk" is a term used to describe those insurance claims that may not be settled or even notified for a relatively long period of time that goes beyond the expiration of the policy period. One classic example of this has to do with claims related to asbestos-related sicknesses, as it may take years for them to even be discovered in the first place.
In the End
Overall, it's absolutely true that inflation is on the rise - but it's also important to remember that these things are cyclical. The situation is a lot more complicated than people are giving it credit for and making an effort to understand can help consumers make more informed decisions in the future.
Regardless, Arnold Insurance will always be there for clients if they have any questions or concerns. In the event that you'd like to find out more information about inflation as it impacts your insurance rates, please don't hesitate to contact a member of our team today.
