The COVID-19 pandemic has had profound effects on the way America works, lives, and conducts business. Since March 2020, the employment landscape has changed, with vast numbers of in-house positions transitioning to remote positions. The pandemic has also placed increased stress on the economy in the form of inflation. The COVID-19 pandemic created supply-chain problems, logistical delays, and empty shelves at the grocery store. Rolling shortages still persist today, as the economy struggles to stabilize. We have seen this with recent claims settlements and wanted to share some of those experiences with you and how important some coverages can be and how this reality may affect your insurance program.

INFLATION’S EFFECT ON INSURANCE

Inflation can place increased stress on insurance programs in three main areas:

• Cost of repairs – Insuring property, whether it be homes, cars, commercial buildings, contents or equipment is typically based on a limit that was estimated to repair/ replace after a covered loss. When costs increase quickly, and labor resources are scarce, the values may be insufficient. Reviewing limits, and verifying if there are replacement cost extensions above the limit on your policy can help you understand if adjustments should be made.
• Premiums charged and availability are a reflection of claim costs – When claim costs increase, premiums charged for policies are less adequate than they were when costs were assumed to be lower. This is especially the case in areas of potential higher claims – coastal and wildfire-prone areas currently, and therefore premiums raise based on the new inflation rates or insurers decide they can’t charge enough premiums to cover costs and curtail offering coverage in some areas. Personal insurance rates have to be approved by most state insurance departments so insurers cannot arbitrarily increase premiums and have caused major disruption in places like CA, AZ, NM, WA, and coastal states like the Carolinas, FL, and LA.
• Pricing .Most insurers increase values at renewal to keep pace with inflation, and that value increase results in increased premiums as well as other rate changes based on other claim cost increases they have already experienced. It has resulted in consistent double-digit premium increases in many policies.
• Investment volatility can affect insurer stability. A large percentage of the assets held by insurers are in the form of fixed assets like bonds or other securities to pay claims. Inflation, market volatility and extreme claims activity can and have affected some smaller insurer’s ability to remain in business. In the past eighteen months, a dozen insurers in FL have gone into receivership due to their lack of capital; the marketplace has not had the capacity to absorb those policies which has added instability not seen since the 1990s.

WHAT YOU CAN DO TO UNDERSTAND YOUR PROGRAM?

Inflation can spell trouble for both insurers and you. Want to make sure your assets are fully covered? Here are some steps you can take.

1. Review your policy limits and discuss concerns with us . Now is a great time to review the limits and features. We can help you understand how various scenarios would play out if you have a potential claim.
2. Confirm replacement coverage. Discuss the replacement cost limits and policy features to see if your assets will be fully valued in the event of loss, damage, or theft.
3. Be sure cost specs are accurate for today. As values change, your insurance policy should keep pace. Make a thorough review or reappraisal of your assets. Review elements like building materials, that may affect the reimbursement values Have personal assets like jewelry re-assessed regularly to keep pace with appreciation?
4. Work with a knowledgeable independent agent. Your insurance agent should be your advisor. Talk with us about your inflation or other concerns.

At MAGIS, we understand how hard you’ve worked to build the life you have. Our insurance professionals are ready and eager to help you safeguard your most valuable assets. Contact us today!