How Is Inflation Affecting Your Insurance Coverage?
What is the impact of inflation on insurance, and what does it mean for policyholders? Given the rising cost of parts and materials and the labor shortage, do you have the right coverage? Are you getting the best value at a fair price? As costs rise, insurers may end up paying out more than predicted for insurance claims, but why? Learn more about this issue below.
What Is Inflation, and Why the Recent Spike?
Put simply, inflation is the rate at which prices of goods and services rise over a period of time. More specifically, it signifies a decrease in the value of money – i.e., buying the same product costs more than it previously did.
There is no full consensus among economists about why inflation is so high right now, but there are some commonalities among their analyses: for example, supply chain disruptions, high-interest rates, energy shortages, increased consumer demands, and turmoil around the globe.
In a nutshell, mandated shutdowns, layoffs, many employees not returning to the workforce, and illness from COVID-19 created both labor shortages and goods shortages, all while demand for consumer goods was spiking exponentially while people were stuck at home. While the situation here at home has improved, there are still global implications that continue to impact the supply side. As the demand for these services continues to be much higher than the supply, it continues to be a recipe for inflation.
The Tight Labor Market
According to the U.S. Chamber of Commerce, there are currently 11.4 million open jobs, but only six million unemployed Americans are actively looking for work. Companies are competing fiercely to hire and maintain workers, both skilled and unskilled, driving wages higher. Fortunately, wages have been steadily rising since 2009, but there was a huge spike in mid-2021 due to these conditions. This has likely contributed to the recent global trend in inflation.
So What Is the Impact of Inflation on Insurance Costs In The United States?
The hardening of the insurance industry – higher premiums, stringent underwriting, less risk-taking by insurers – has been happening long before the recent inflation trend. But the current economic climate will likely exacerbate these trends of raising rates, taking on less risk, and focusing more on risk prevention. Therefore the impact of inflation on insurance usually makes premiums more expensive for consumers.
As costs rise, insurers may end up paying out more than predicted for insurance claims. After all, insurers depend on making enough through premiums and spreading risks across enough policyholders that they’ll easily be able to pay out claims costs. But when the number and cost of claims go up, this upsets the balance.
What Does the Impact of Inflation on Insurance Mean for Policyholders?
Consumers should expect their insurance premiums to go up if they haven’t already. But even though consumers can’t control inflation, they can control which policies they hold and what kinds of protection they get with them. For example, many insurance carriers offer inflation protection, and they offer this rider on a variety of policies, including homeowners insurance, auto insurance, life insurance, and long-term care insurance. It’s like a safety net on top of the regular policy, ensuring a policyholder will be able to fully replace an asset should they lose it during a time of high inflation. The best way to discover which insurers carry the best policies and whether or not you’re getting the best coverage for your needs is to go to an independent agent like Insurance Marketplace Agency.
Determine If You’re Getting the Best Policy Coverage
While costs continue to rise and premiums subsequently go up, it can feel like you have little control over what you pay for insurance. But an independent agent like Insurance Marketplace Agency can help by offering you a free policy review to see if you’re getting the best coverage available. An independent agency brings you freedom of choice when it comes to insurance.
Contact Insurance Marketplace Agency today to see how you can save on insurance and get the best coverage available.