How inflated material costs affect insurance premiums
You have probably noticed higher prices in many areas of your life. From gas to groceries, prices are rising with the US reaching inflation levels never seen before ̵1; and the insurance industry is not immune to this trend. Across the industry in most markets and with most insurance companies, whether you have had a claim or not, home insurance premiums are rising due to a variety of factors. Many of these factors are beyond your control, as are your agents and insurance companies. Many current conditions, including increased costs for materials and labor, as well as an ongoing shortage of workers mean that you can see an increase in your premiums at the time of renewal. If you have any questions, contact our office at 413.475.7283 or fill out our quote form online today!
What factors affect the prices of home insurance?
Prices are determined by the probability of a homeowner submitting a claim and the potential risks. Home insurance rates are driven by many standard factors, including:
- The amount of coverage needed
- Age of home
- Responsibility issues
- Previous claims
There are other influencers caused by national trends that also contribute to interest rates.
Why do home insurance prices go up?
The main reason for rising interest rates is rising inflation. When prices rise, the costs of living and owning a home increase, which in turn affects home insurance prices. These interest rate increases occur in insurance companies across the country.
Home insurance premiums can be affected by influencers beyond your control. Various nationwide factors affect the cost of rebuilding homes, which leads to the need for more coverage in the event of a claim. Some of the trends that drive up costs include higher material costs and problems with the supply chain. For example, materials for rebuilding homes have increased by 26%. Lack of manpower leads to longer construction and damage management times, which also affects the cost of damage.
Higher material costs
From record high prices to lack of materials, the building construction industry has seen long delays, higher prices and a large number of postponed projects. These higher prices for construction projects, renovations and repairs lead to higher costs for homeowners.
With the price of building materials, such as plasterboard, shingles, timber and copper pipes, rising by an average of 26%, homes have become more expensive to repair and replace. According to a survey conducted by the Swedish Builders’ Association, this is the largest single annual increase in the survey’s history.
Ninety-three percent of contractors are affected by the increased price of materials that leads to higher replacement costs when insurance claims are submitted.
Increased shipping costs and delays
The pandemic has affected almost every part of the global supply chain, causing shipping delays and higher prices. When shipping ports become overwhelmed and backed up, it affects the time it takes to get material to homeowners and the cost of delivering the material. From white goods to plumbing fixtures, it has taken weeks and months longer to get building materials, which previously had taken days to get.
94% of Fortune 1000 companies have reported supply chain disruptions from covid-19.
Globally, RBC Capital Markets reported that 77% of ports are experiencing abnormally long times to turn traffic.
In fact, marketplace data from Freightos.com show that in September 2021, it took sea transportation between China and the United States an average of 73 days to reach its final destination, 83% longer than in September 2019.
Higher labor costs
Builders often hire subcontractors who handle electricity, plaster, plumbing and other construction areas. With the current shortage of labor, higher costs are required to secure skilled labor or obtain the necessary materials. This in turn has forced house builders to take into account higher costs for construction and conversion work.
89 percent of contractors have difficulty finding craftsmen and 88% of companies experience project delays.10
In addition, the United States is seeing a decline in the number of Americans becoming traders. The National Electrical Contractors Association reports that 7,000 electricians join the field annually, but 10,000 retire.11 This deficit results in higher prices and longer waiting times for home projects.
Is home insurance the only protection affected by current trends?
Car insurance is also experiencing increases due to national trends. Prices for used cars have risen by 40%, the cost of repairs has risen, car parts are more expensive and difficult to obtain due to supply chain problems, and rental car costs have risen by 30%. These factors and others contribute to an increase in car insurance prices.
Questions? Contact an agent with Encharter Insurance at (413) 475-7283 or visit www.encharter.com to learn more.
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