An insurance premium or rate is what you pay for your insurance policy. Insurance premiums are determined based on your policy’s limits, deductibles, and insurance claim history.
There are several factors that are impacting insurance premiums today such as inflation which has become one of the most widely discussed factors. Inflation is the rate at which prices for goods and services rise and has been drastically on the rise. According to the US Bureau of Labor Statistics research shows the cost of construction has increased 28% over the last five years. In 2021 alone, total nonresidential reconstruction costs increased 16.5%, led by a 51% increase in structural steel, and a 22.7% increase in the cost of lumber. Property values of homes have increased because of the limited supply of homes available, and inflation drove up the price of property.
Another factor impacting insurance premiums is supply chain and labor challenges. Building materials are increasing in cost and are more difficult to obtain. Contractors and repair businesses may need to pay workers more because of labor shortages.
In addition, another factor that may cause insurance rates to increase is social inflation which is the rising cost of litigation and insurance claims due to behavioral and socioeconomic trends, such as the legal environment and the normalization of larger settlements over time. Also, insurance rates have been affected by the increased storm activity in many areas of the United States. These damaging storms are noted to be out-of-season, meaning more severe storms happen at unexpected times.
Even though there are several factors highly impacting insurance premiums, it is important to stay on top of policy limits as inflation rates increase whether you own a business or a home. Many insurance policies often include an “inflation guard” to protect against inflation, but it may not be enough with the high rates of inflation we are seeing today.
Due to inflation, it will cost more to build now, and people can find themselves in underinsured situations if insurance limits have not been reviewed. Make sure your home or building for your business has adequate insurance limits in place and review these limits often with your independent agent especially if a loss occurs to rebuild the structure. Sources: https://www.secura.net/blog/how-does-inflation-impact-insurance/ https://www.linkedin.com/pulse/property-values-inflation-impacts-insurance-premiums- https://www.auto-owners.com/ao-blog/-/blogs/what-are-insurance-premiums-insurance-deductibles-and-policy-limits-our-experts-explain-1 https://www.acuity.com/the-focus/home/rising-construction-costs-put-homeowners-at-risk