How inflation affects the cost of insurance
If you follow the economy, you’ve probably heard about the global supply-chain problem. There have been shortages of materials to build advanced products, such as new cars and their replacement parts. A shortage of car microchips has made it more costly to fix or build new cars. Meanwhile, the U.S. housing industry has faced a persistent shortage of construction labor, lumber and other materials, contributing to a shortage of new houses and significantly higher home prices in many communities, as well as higher renovation costs.
These shortages and the resultant higher cost of cars, car repair, homes and renovations, among other big-ticket items, will likely cause insurance rates to go up in Washington over the next few years. Insurers are bearing more costs to replace or repair homes and cars, and will attempt to raise their rates accordingly. (Note that your individual rates may not go up. The cost of auto, home and other coverage is based on an individual’s circumstances. So, it’s possible for your rates to go down even when the average cost of insurance is increasing.)
That said, you can assume you’ll eventually be hit with a higher bill for many types of insurance. The question is what should you do? The worst approach is to lower or eliminate your coverage. There’s a good reason to buy the maximum available liability insurance on an auto policy and enough disaster, fire and flood insurance to replace the full value of your home — and that is to protect yourself from catastrophic financial loss. You don’t want to put your retirement and family’s financial future at risk.
But it is also important to know that even when insurance rates rise there are ways to save money. You may be able to get a lower rate from another carrier. You can switch to a policy with a slightly higher out-of-pocket deductible, but still maintain the same level of coverage. You almost always have options. Your best move is to periodically pick up the phone and discuss your needs with a qualified, knowledgeable and caring AAA Washington insurance professional.
—Written by Michael Riley. Riley has more than 25 years of experience in the insurance industry and is a guest lecturer at Washington State University.
—Top photo from AdobeStock
This article appears in the Winter 2023 edition of AAA Washington member magazine, Journey.