The rising cost of inflation affects more than just the price at the pump or the cost of groceries – you can also see effects in your insurance premiums. It is important to think about the things that are included in the price of the insurance to make sure that you are properly protected.
What effect does inflation have on insurance premiums?
The cost of insurance is determined by many factors, including the cost of repairing vehicles, homes, commercial buildings, farm and agricultural buildings, farm personal property, equipment. As these costs increase due to factors such as inflation, the insurance premium may also increase.
Other factors that affect increased insurance rates include:
In recent years, many areas of the United States have seen increased storm activity resulting in more storm damage. Many of these damaging storms are noted to be out of season, meaning more severe storms happen at unexpected times.
The supply chain and work challenges
Building materials have increased in cost and are harder to come by. With the current labor shortage, contractors and repair companies must pay their workers more and include the cost of their hired labor in their bids. In general, it costs more to repair a vehicle, home, building or machine today than it did in years past.
Social factors of inflation
Social inflation refers to the rising costs of litigation and insurance claims due to behavioral and socioeconomic trends, such as the legal environment and the normalization of larger settlements over time.
The risk of underinsurance
It is important for policyholders to stay on top of policy limits as inflation increases. For example, if your company owns a building, the building is insured up to a certain limit. Having adequate insurance limits is necessary if a loss occurs to rebuild the structure. Because it costs more to build now due to inflation, people can find themselves in underinsured situations if the policy limits have not been reviewed.
Although many policies include “inflation guard”; to protect against a certain level of inflation, it may not be enough with the high rates of inflation we see today. Policyholders should speak to their Bolder Insurance advisor to ensure they have the correct building and machinery limits to ensure they are adequately protected in the event of a loss.
This article compliments of Secure Insurance Companies, a bolder insurance partner.