The impact of inflation on insurance premiums
Insurance companies determine premiums by taking many factors into account, including how much it will cost to repair a car, home, or other insured property in the event of a covered loss. The more expensive it is to repair or replace an insured item, the higher the premiums. (This is why, for example, it costs more to insure a luxury SUV than an entry-level sedan.)
Today, many insurance companies are having to adjust their premiums as many different factors are all contributing to a rise in the cost of fixing or replacing property:
- A shortage of new cars, caused by a shortage of parts, is leading to higher prices for the cars that are available, both new and used. From 2019 to 2022, the average manufacturer's suggested retail price of a new vehicle rose by $10,000, an increase of 27.4%.1 From April 2019 to April 2023, the Manheim Index of wholesale used vehicle prices rose nearly 53%.2
- The shortage of new cars is leading people to drive older cars longer, further increasing demand (and prices) for car parts as those older cars need repairs. The average total cost of repairs rose almost 30% from 2019 to 2022, with parts accounting for 43.5% of the average repair’s cost.1
- Vehicle repairs are taking longer, raising the cost of rental coverage for insureds as they are likely to need rental cars for longer periods.
- Likewise, limited supplies of construction materials like lumber, steel, and copper wire have raised the cost of repairing and rebuilding homes.
- As in many other sectors, the auto repair and construction trades are seeing a shortage of labor, too, further increasing costs.