Inflation Outpacing Premium Increases for Auto and Homeowners Lines


US Insurers — already hammered by extraordinary losses brought on by natural disasters — are failing to lift premiums at a pace that matches the inflation rate, in line with the American Property Casualty Insurance Association.

APCIA said private property/casualty insurers experienced an $11.3 billion underwriting loss within the third quarter of 2021. Incurred losses and loss adjustment expenses increased by 17.8% during that quarter, in comparison with the prior 12 months. Yet direct written premium increased only 3.1% for auto and eight.4% for homeowners.

The claims inflation rate far surpassed the 7.5% increase within the Consumer Price Index that the Bureau of Labor Statistics announced in January, which was the very best inflation rate in 40 years.

APCIA issued two reports on March 4 that specify how rising costs are impacting the non-public auto and homeowners lines.

For auto, inflationary pressure is increasing the associated fee of repairs, automotive rentals and vehicle replacements. At the identical time, the quantity of traffic has roared back and was inside 1% of pre-pandemic 2019 levels for six of the ultimate seven months of 2021, in line with Department of Transportation data.

Motorists apparently acquired bad habits throughout the pandemic, causing increases in claim frequency throughout 2021. The vehicle crash fatality rate jumped 12% in the primary nine months of 2021 in comparison with the identical period within the prior 12 months, to 1.36 deaths per 1 million miles driven, in line with the National Highway Safety Administration.

“Because the start of the pandemic, Americans have embraced riskier driving behavior, comparable to impaired driving, speeding and failure to wear seatbelts,” stated Robert Passmore, vice chairman of auto and claims policy for APCIA. “This concerning trend is resulting in more crashes at a time when the associated fee of medical care and vehicle repairs are escalating.”

For the homeowners’ line, skyrocketing increases in constructing material costs follow a two-year spree that saw the very best natural disaster losses in history — $176 billion 2020 and 2021. In accordance with a report by Aon, 2021 was the fourth most extreme catastrophic loss 12 months in history.

At the identical time, home construction increased to the very best level since 2006, rebounding after a brief pause throughout the COVID-19 lockdowns in early 2020. The demand to construct recent homes while also replacing homes damaged or destroyed by floods and wildfires previously two years pushed up the associated fee of lumber. An evaluation by the National Association of Home Builders in January found that the combination cost of residential construction materials has increased almost 19% since December 2020. Shortages brought on by supply chain bottlenecks in the availability chain exasperate the upward pressure on prices, the report says.

Price increases result in higher claims costs. In accordance with AM Best, the homeowners multi-peril direct losses incurred increased 40.3% during the last two years.

“Insurers are strongly encouraging property owners to harden their homes and businesses to cut back potential loss and damage,” stated Karen Collins, assistant vice chairman for APCIA. “As well as, throughout the current cycle of maximum inflation, policyholders are encouraged to ensure they’ve enough insurance and are financially prepare should disaster strike.


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