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How to prepare for rising home and auto rates

The pandemic has hit just about every industry imaginable in new and challenging ways, and the insurance industry is no different. We’ve seen higher than normal year-over-year increases in homeowners’ rates already (which will continue again in 2022) and we are anticipating a rate increase across the country with auto rates as well.

Knowing that rates are going up might help you plan ahead as you look towards your next renewal, but we felt it is also important to understand some of the “whys” behind these increases, if anything, so you have something to talk about around the watercooler, but also to get ahead of the discussions you’ll be having with your agent.

Causes for homeowners’ rate increases

  • Increased replacement cost values driven up by a difficult housing market
  • Material Costs for new residential construction are up 18.6%1 while prices for lumber and wood products remain up 6.2%2
  • Labor costs are significantly higher due to labor shortages and high demand (nearly 360,000 job opens in the Construction industry3)
  • Increased number of natural disasters, such as named hurricanes, wildfires, regionally higher/lower temps than customary causing damage to homes in greater numbers, increased number of wind and hailstorms throughout the Midwest, including derechos) resulting in an overall increase in claims throughout the country.
    • More than 20 weather-related disasters with losses totaling over $20B in 2021 alone4

Causes for auto rate increases

  • Driving reductions during the Pandemic resulted in temporary discounts that are now being lifted as people start driving again.
  • Claims during the pandemic remained high (fewer drivers resulted in open roadways leading to faster speeds and larger loss claims)
  • Driving is nearing pre-pandemic levels, but speeds continue to remain high resulting in more and bigger claims with average claim costs increasing 20%5
  • Auto-repair shops are struggling to find reliable labor, while wages increased more than 9%6, so the cost to repair damages has gone up drastically
  • Limited parts availability is also slowing down repairs, driving up costs for both suppliers and repair shops
  • The chip shortage and limited part availability has reduced New Car sales by more than 50%, driving up the used car market significantly. This means replacement costs for new cars and used cars are driving up claims even higher (used care prices are up 26.4% and new car prices are up 9.8%7)

What you can do to prepare

Expect that your next renewal is going to be higher, plain and simple. It may mean you’ll want to shop around a bit to see if you can save some money. If you plan ahead, many carriers will offer an “early quote discount” if you quote coverage more than 14 days in advance (this will fall off over 5-7 years as your customer loyalty discount grows), so planning a move might require some heightened attention compared to what you’re used to at renewal time.  There also is a pretty good chance that the carrier you are with is still your best option (because every other carrier is also increasing rates).

What we’re doing to help

Every one of our customers gets reviewed at every renewal, even during the good times and even if nothing has changed. Our team will review each renewal to see how rates were impacted and will shop the open market to see if we can find a better option with another carrier.

We’re also spending more time on education regarding coverage limits and features that are important to you. Right now, many agencies are using this time to “undercut” prices by limiting important coverage features when quoting, knowing that people will be shopping for a lower rate. This will get their attention and possibly move them without knowing what they are giving up.

Lastly, we’re discussing alternative ways our clients can help stave off any increases with their auto insurance by considering a telematics discount.  By having your driving monitored for up to 90 days by just downloading an app to your phone, you can save anywhere from 5-30% on your premiums if you are a good driver.  This isn’t for everyone, but if savings is the goal then it might be worth a discussion to see if it’s right for you.

North Star Resource Group is here to help. If you ever have questions, you can reach our team at nspc@northstarfinancial.com and someone from our team will jump at the opportunity to assist.

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    Chase Brakke, DIA, DIF

    Author: Chase Brakke, DIA, DIF

    Chase leads our disability insurance and property and casualty insurance divisions, ensuring clients have a customized protection strategy for their specific individual, family, and business needs.

    Chase is a registered representative and investment advisor representative of Securian financial Services, Inc.

    RNR 12-2021

    1. S. Bureau of Labor Statistics, Producer Price Index by Commodity: Inputs to Industries: Net Inputs to Residential Construction, Goods, October 2021
    2. S. Bureau of Labor Statistics, Producer Price Index by Commodity: Lumber and Wood Products, October 2021
    3. S. Bureau of Labor Statistics, Job Openings: Construction, September 2021
    4. NOAA National Centers for Environmental Information (NCEI) U.S. Billion-Dollar Weather and Climate Disasters (2022). https://www.ncdc.noaa.gov/billions
    5. Impact of the Pandemic on the P&C Insurance Economy, CCC Intelligent Solutions, Sept. 2021
    6. General automotive repair avg. wage +9% from 1Q21 to 2Q21, U.S. Bureau of Labor Statistics (BLS)
    7. Consumer Price Index, U.S. Bureau of Labor Statistics, Oct. 13, 2021

     

    Consumer Price Index, U.S. Bureau of Labor Statistics, Oct. 13, 2021