Inflation impacts all aspects of our lives—but it is having an outsized impact on the cost to repair or replace cars and homes. Data reveals that 20% of homeowners don’t know how much they pay for home insurance[1]—so chances are, many will not anticipate the impact inflation will have on their premiums.
Agents can help clients prepare for the increased premiums that will result. As a regulated industry, we often cannot increase prices until we see clear changes in our costs. For example, inflation has caused the cost of building materials—from asphalt shingles to wood—to rise, and skilled construction workers are in short supply, which leads to higher labor costs. According to a report published by Verisk, New York state has seen construction costs rise 11.5% in January compared with a year earlier—the largest increase in any state. Eventually, most carriers will be forced to pass on these increased costs to policyholders in the form of higher premiums.
As trusted advisers to their clients, independent agents should be able to forewarn policyholders—so they can adjust their budgets—and provide sound advice about what to do (or not to do) to address rising premiums (e.g., using higher deductibles, not reducing their coverage, or shopping for a new carrier).
No skimping
Despite premium increases, this isn’t the time to skimp on coverage. Your clients must carry enough coverage to protect their assets in case their home sustains significant damage. Counterintuitively, this is a time when homeowners should be increasing their coverages, especially Coverage A. Most policyholders recognize this, after seeing their home values rise. However, inflation costs for construction and household repairs often have increased faster than home values.
Agents may need to help clients understand that if their house is damaged in a covered event, the amount of dwelling coverage they will need is determined by the estimated cost to rebuild the home, not by its market value. Often, we focus on buying enough dwelling coverage to rebuild their homes from the ground up in case of a total loss.
However, the incremental cost for the last $10 or even $50 thousand of replacement cost is much lower than the cost of the first $200 to $400 thousand of coverage. Customers will save more with higher deductibles than they will by risking too low a limit after a major loss.
Guard against inflation
You also can educate clients on how inflation guard protection works in their policy. This policy feature automatically increases the amount of dwelling replacement coverage—or Coverage A—at each renewal, due to inflation. Agents can explain how this coverage guards against the risk that inflation poses to homeowners. Many clients may not know the protection exists, or that they may need to increase their policy limits even more in high inflationary periods such as what we are experiencing right now.
Time to deliver
The value of a trusted insurance adviser is delivered in moments like this. Without agents, customers often make mistakes that leave them improperly covered at a price savings not worth what they give up in financial security.
Inflation challenges have not been easy on homeowners. With an independent agent at their side to help guide and educate them through this difficult time, they have the advantage over people who rely on their own limited understanding of insurance.
In the end, agents will foster stronger relationships with clients and build trust when recommending tailored advice to get them through these economic hardships.
[1] Plymouth Rock Assurance survey
Bill Martin
Bill Martin is the president and CEO of Plymouth Rock’s Home Insurance Group at which he oversees the business’s operations and reinsurance program. Bill has 35 years of experience in the property/casualty insurance industry. He has held senior positions at Farmers, Great American, Progressive and Travelers. Prior to joining Plymouth Rock in 2016, Bill was president of Bankers Insurance in St. Petersburg, Fla. He has a B.A. in political science from Stanford University. He is an avid sailor, skier, trombone player and sports fanatic.
