Inflation has impacted many areas of the economy in recent years. Recently, consumers have felt the pain of inflation in the form of higher property and casualty insurance premiums. As a full service, independent insurance agency, Ancora Insurance Solutions is well positioned to discuss the current property and casualty landscape and what consumers and business owners should consider to best manage their insured risks. We discussed this timely topic with Kevin Neitzel, who leads Ancora’s Property & Casualty team, and Kevin Gale, who leads Ancora’s Fixed Income team.
Q: Mr. Neitzel, we know that car ownership in general is getting more expensive and a major component of that cost is insurance. Year-over-year premiums are up substantially. From your vantage point, what is driving those increases?
A: The auto insurance marketplace is experiencing rate increases of as much as 40% with the average increase being 18%. Increased labor and material costs, advanced and costlier vehicle technology and chip shortages for new vehicles are all to blame. Miles driven have also climbed back to pre-pandemic levels, along with significant increases in traffic accidents. Supply chain and labor shortage difficulties are impacting car parts used for repairs, which are taking significantly longer and costing more. All of this adds up to higher premiums.
Q: Are you seeing similar trends for homeowners’ insurance and other property coverage areas?
A: Property insurance for both commercial and personal buildings is experiencing rate increases averaging more than 20% as well. The factors contributing to rising property costs are costlier building materials, labor price increases, more frequent weather events, assertive contractors and open floor plans. That said, there is some relief as the rates for personal and commercial umbrellas, renters’ insurance and valuable articles policies have been stable.
Q: Mr. Gale, as Ancora’s Head of Fixed Income, what role do you see higher overall interest rates playing in setting the “market” for property and casualty premiums?
A: Higher bond yields are positive for insurers but with some offsets. They support insurance company profitability through higher investment income on their investment portfolio. However, these advantages are partially offset by a higher cost of debt issuance and inflationary pressures on claims. In addition, higher interest rates can result in unrealized and/or realized losses on currently held bonds, depending on accounting guidelines. Most insurance companies seek to hold bond investments to maturity, however, and like bank investment portfolios, losses are only realized if the insurance company is forced to sell the position prior to maturity.
Q: Back to Mr. Neitzel, what recommendations does Ancora’s insurance team have for consumers and business owners during this particularly difficult market for property-related insurance coverage?
A: In this environment, we recommend only filing claims when paying out of pocket for the loss would otherwise create financial hardship. Avoid filing small maintenance-type claims that can negatively impact your rates. We recommend opting for increased deductibles as well, which can give some premium relief on both property and auto insurance.
In addition, updating or replacing older roofs, electrical, plumbing and HVAC (heating, ventilation and AC) systems can mitigate risk as these are often the loss culprits in many situations. Replacing and properly maintaining these systems can limit losses from occurring in the first place and add value to your property. Preventative systems, such as water shutoff devices, can also prevent a small issue from becoming a large claim and installing them will typically result in a discount from the carrier.
Q: Lastly, are these shifts in the insurance industry more secular, in your opinion, or cyclical?
A: The insurance markets are cyclical in nature. My 27 years in the property and casualty industry tells me that, while we are in a tough, hard market and will be for the next 12 months or so, over time the market will turn, and we will be in a softer market again.
Our team is happy to discuss these concepts further. Please reach out to your Ancora relationship team for a review of your insurance needs.