Four Factors Affecting Insurance Rates
The last several months consumers have been feeling the pain at the pump, at the grocery store and in insurance costs. The consumer price index indicates a 6% increase in the index for all items from February 2022 to February 2023. There are many things that affect the price of insurance, but four factors we are going to focus on here are building materials, labor shortages, severe weather events and supply chain issues.
- Building materials: Building material prices have increased 33% since the start of the pandemic. It wasn’t long ago that the average cost to rebuild was approximately $150 per square foot whereas now we are seeing that cost closer to $300 per square foot. Because of the increased costs, this is a good time to re-evaluate the insurance limit you have on your home or business to be sure it has kept up with inflation.
- Labor shortages: Labor shortages have caused real pains in the auto repair industry where the shortage of technicians has been causing a backlog of work. According to the CCC study, from 2019-2021 the time between the start and completion on repairs has increased 2.1 days. It is taking even longer to get an appointment with 96% of shops saying they have backlogs of two weeks. Part of the problem is a labor shortage in the insurance industry also, which affects the time it takes to receive an in-person appraisal, pushing repairs back even further.
- Severe weather events: We have seen an increase in frequency and severity of weather events. According to Aon, natural disasters have increased from $39 billion in 2019 to $93 billion in 2021 and will be close to $100 billion in 2022.
- Supply chain issues: Since the pandemic, there have continued to be supply chain issues in many different sectors, including the auto industry. There is a shortage of new and used vehicles which drives up the cost to replace and repair a vehicle. In addition, repair times and costs continue to rise as newer vehicles are more complex than they used to be. Used car and truck values are up 47% from pre-pandemic levels and motor vehicle repairs are up 23% over the last year.
*Nahb.org-building materials prices start 2022 with 8% increase, bls.gov; https://www.iii.org/fact-statistic/facts-statistics-us-catastrophes; https://abcnews.go.com/Business/car-repair-prices-rising-fasterinflation/story?id=97666273#:~:text=Motor%20vehicle%20repair%20prices%20have,auto%20shops%2C%20industry%20experts%20said; https://www.forbes.com/sites/edgarsten/2022/03/15/repair-tech-shortage-costing-motorists-time-and-money-ccc-study-shows/?sh=3d40ae126ca0