After two years of flat and even decreasing premiums, 2022 is going to be a different story. Most insurance companies will be increasing premiums. Let’s face it- NO ONE is happy about this, least of all you. So we wrote this article to help you understand 1) WHY and 2) to offer solutions to help you combat rate increases. To understand how we got to where we are today, we need to start back in 2020 and move forward.
2020- the start of the pandemic
When the pandemic began in 2020 and lockdowns were put in place, many insurance companies responded to the reduction in driving and subsequent reduction in claims costs (less driving equals less opportunity for accidents) with one of two solutions: reduction of rates across the board and/or premium refund/cash dividend distribution (similar to a rebate).
These measures were put into place to help customers as they worked through the pandemic.
Fast forward to 2022 and the situation today
All insurance companies- like most businesses- are facing rising costs of doing business. Keeping a balance between insurance premiums and the cost of doing business is key to an insurance carrier’s ability to continue to pay claims.
And a quick review- when customers pay insurance premiums, those premiums are dumped into a “pool” with other customer premiums. Those premiums are used to pay claims. When that pool decreases, premiums are raised to replenish it (Ohio state law says that an insurance company must keep a minimum amount of money in “reserve” to pay future claims).
Following are THE key factors affecting insurers’ cost of doing business today as they relate to Ohio auto insurance and home insurance. And why you can expect increasing premiums. It’s not ALL bad news though- read on for solutions to help you maintain or even lower your premiums.
Auto insurance- top 6 reasons for increasing premiums
- INFLATION. The Consumer Price Index (CPI) rose 7.5% for the 12 months ending January 2022. This is the highest increase since February 1982. Yes, 1982! This increase means we are spending 7.5 percent more for goods and services this year than last year.
- New and used vehicles cost significantly more today than a year ago. From the period of time measuring December 2020-December 2021, the CPI for new vehicles rose 11.8% and used vehicles rose 37.3%!
- And speaking of vehicles, cost of vehicle parts plays a large part in claims payouts. For January 2021-January 2022, the CPI for motor vehicle parts & equipment rose 12.6%.
- Now that lockdowns and restrictions are starting to ease up, more drivers are back on the road, and driving at faster, unsafe speeds (and causing more severe accidents). Erie Insurance conducted a study with 1 in 10 drivers admitting to driving at speeds 20 MPH over the speed limit.
- And speaking of auto accidents, according to estimates from the National Highway Traffic Safety Administration, fatalities for the 1st 9 months of 2021 increased by 12%. This is the highest amount for the 1st months of any year since 2006.
- And lastly, vehicle repair costs have increased due to a variety of factors, including technology advances, shortage of available parts and shortage of labor to make repairs. All can lead to delays as well, meaning customers are in rental vehicles longer (also driving up claim costs).
Homeowners insurance- top 4 reasons for increasing premiums
- INFLATION. Yep- same exact situation as auto insurance described above.
- Increased costs for building materials and shortage of skilled labor. Most Ohio homeowners insurance policies use replacement cost to determine the amount of coverage on the policy.
- Speaking of building materials- fearing demand would drop during the pandemic, lumber producers cut production and reduced inventory. But in a twist, more people decided to remodel their homes than ever before. Lack of supply and high demand turned into super high prices for lumber, with a high of $1,500 per thousand feet of board March 2021 and dropping to around $900 in December 2021. Compare that to $300-400 between 2015-2019.
- Natural disasters accounted for a higher amount of insured losses. Of the estimated $145 billion in losses, around $85 billion were insured. Compare that to $100 billion (with $67 billion insured losses) for 2020 and $52 billion (with $26 billion insured losses) in 2019. Tornadoes, hurricanes, unusual weather (such as the deep freeze in Houston) and wildfires all contributed to these losses.
Solutions to help lower your auto and home insurance premiums
- Are your auto and home policies with the same carrier? When possible, putting your auto and home insurance with the same carrier results in a multi-policy discount (which can be pretty big). And this discount can often apply to BOTH policies (depending on carrier).
- Consider raising deductibles. A higher deductible can help reduce premium, especially on your home.
- Change your pay plan. Some carriers will give a discount if you pay in full. Also if you choose an EFT (automatic deduction), most carriers will NOT charge an installment fee (or charge a low one). With some carriers charging $5-7 per installment, it can add up quick.
- Have old vehicles on your auto insurance and still carrying comprehensive and/or collision? Perhaps the time is now to consider dropping those vehicles to liability only (if possible).
- Are you now driving less than before the pandemic? Perhaps your daily and/or annual mileage needs to be adjusted to a lower amount. Often this leads to a lower rate.
- Talk to your insurance agent. Perhaps there are discounts available now that weren’t before. Or your situation has changed and coverage needs to be adjusted. You won’t know until you ask.