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A Stealth Contributor to Inflation-Insurance Premiums

March 21, 2024 | Posted in: Insights

In his Congressional testimony last week, Federal Reserve Chairman Jerome Powell discussed a topic that has impacted most of us without receiving a great deal of press coverage-the steep rise in the cost of both auto and homeowner’s insurance. The Bureau of Labor Statistics reports that the premium on the average auto policy rose 20.6% over the past year accounting for .5% of the 3.2% increase in the Consumer Price Index during that period. Rising auto insurance premiums are attributable to climate related disasters, the rapid increase in car prices during the pandemic, increased complexity of automobiles, inflation in the cost of car parts, and higher labor costs.

Over the past decade, the U.S. has experienced losses due to severe weather of $1.1 trillion contributing to rising home insurance premiums and decreasing coverage. In fact, many companies have simply withdrawn from higher risk markets leaving many individuals with no option other than state sponsored insurance programs that some experts believe are woefully underfunded. Specifically, the average home insurance premium increased 11.3% nationally last year and there was a 35% decrease in available insurance policies, particularly for higher risk areas such as Florida and California, but also for Georgia, South Carolina, New Jersey, New York, and Arizona. On a personal note, my homeowner’s insurance premium increased a total of 40% over the past two years despite the fact that I do not live in an area that is considered particularly high risk. Fortune Magazine covered Powell’s testimony with the ominous headline: The economy is increasingly uninsurable!