Today, with inflation at a 40-year high, few have escaped first-hand experience with the escalating cost of goods and services—including home and automobile insurance premiums. And while some analysts believe price increases have begun to ease, several global factors first ignited by the pandemic may continue to drive up coverage costs for the foreseeable future:

• Higher construction costs due to material and labor shortages,
• Continued supply chain disruptions,
• Auto parts shortages leading to higher costs and delayed repair time—and often resulting in more cars deemed a “total loss,” given higher rates for repair,
• Escalating rental car costs,
• A remarkable 10-fold increase in catalytic converter thefts since 2019, resulting in increased claims.

Inflation’s impact on home and automobile coverage is one of the most crucial conversations taking place in personal insurance today because nearly everyone who buys such policies is affected. While external challenges may be shared or similar, every individual and every family needs unique coverage. As always, our discussion below is for educational purposes only. To find out how inflation may affect your personal home or auto coverage, please contact your Eastern Insurance advisor.

It’s about replacement cost, not market value

While it may seem counterintuitive, insurance premiums are not based on current market value. Instead, they are priced according to the estimated cost to repair, rebuild, or replace your property using materials of similar quality and type. In today’s economy that means that when your property gets damaged—whether home, automobile, or other insured property—the cost to repair or replace it will likely supersede its current value, potentially exposing you to unexpected out-of-pocket expenses.

Protecting your dwelling

Many insurance carriers are now reassessing their books of business to calculate new replacement values using publicly available information such as property cards held by the town’s assessors and old inspections or cost estimates. How serious are their findings? When recalculated using today’s values, many homeowners may see their dwelling replacement costs increase by $30, $50, and even as much as $100K. Below are a just a few recent statistics illuminating the reasons for these dramatic hikes:

• Building materials costs are still increasing – Q4 of 2022 saw an 8% average increase in building materials.
• Construction companies report an average project delay of 46.8 days,
• 86% of contractors report craft labor shortages,
• More than 4 in 5 organizations experienced at least one significant supply chain disruption in 2022.

Protecting your vehicles

Nearly everyone who has tried to rent a car or buy a new or used car during the last three years has been met with sometimes eye-popping price tags. Industry-wide price increases mean that your existing coverage simply may not be sufficient should you need to repair, replace, or rent a vehicle. Recent auto inflation factors include:

• In 2023, prices are expected to decline by 2.5% to 5% for new cars and by 10% to 20% for used cars.
• A 15% increase in vehicle repair costs,
• A staggering 40% increase in used car prices,
• Rental car costs escalating by 30%, partly due to limited inventory,
• An 8.2% increase in mechanic labor fees.
   

Without home or vehicle policies that keep pace with inflation, you may be left with a significant gap in coverage.

Assess your challenges and opportunities today

Of course, none of us can control the global market economy, but all of us can take steps to make sure our homes and families are protected from loss. If you are concerned that your current homeowner’s insurance policy may not provide adequate coverage to rebuild or replace your home, contact your Eastern Insurance advisor to review its terms. Some topics to discuss may include:

• Exploring whether increased coverage will help you avoid potential gaps and hefty out-of-pocket expenses,
• Bundling your home, auto, and other coverage for better pricing,
• Reviewing renovations you’ve made in the last year or plan to make this year,
• Understanding your current policy discounts, if any,
• Establishing higher deductibles to manage premium rates.

Though it may be difficult to consider increasing your home or automobile insurance as the world dances closer to recession, doing so may be your best opportunity to create long-term peace of mind while protecting your investments and your family. Without enough coverage to rebuild, replace, or repair your property after damages, your out-of-pocket expenses could potentially be catastrophic. We’re here to help you understand the details of your current policies and explore whether increased coverage may benefit you. Read more about how insurance may protect your family during inflationary times. Contact us today at info@easterninsurance.com.