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On the Rise

By Lisa Johnson

 

You have probably noticed higher prices in many areas of your life. From gas to groceries, prices are going up, with the U.S reaching inflation levels never seen before — and the insurance industry is not immune to this trend. Across the industry in most markets and with most insurance companies, whether you’ve had a claim or not, home-insurance premiums are rising due to a variety of factors.

Many of these factors are out of your control, as well as your agent’s and insurance company’s. Many current conditions, including increased costs of material and labor, as well as an ongoing shortage of workers, mean you may see a rise in your premiums at renewal time.

Home-insurance rates are determined by the likelihood of a homeowner filing a claim and the potential risks involved. Rates are driven by numerous standard factors, including amount of coverage needed, age of the home, location, liability issues, and previous claims. Other influences caused by national trends also contribute to rates.

Why are home-insurance rates going up? The biggest cause is the rise in inflation. When prices rise, the cost of living and owning a home increases, which in turn influences home insurance rates. These rate increases are happening in insurance companies across the country.

Home-insurance premiums can be affected by influences outside of your control. Various nationwide factors are impacting the cost to rebuild homes, leading to the need for more coverage in case of a claim. Some of the trends that are driving up costs include higher material costs and supply-chain issues. For instance, materials to rebuild homes are up 26%. Labor shortages are resulting in longer construction and claims-handling times, which also impact the cost of claims.

 

Higher Material Costs

From record high prices to shortages of materials, the home-building industry has seen lengthy delays, increased prices, and a large number of postponed projects. These higher prices for construction projects, renovations, and repairs lead to higher costs for homeowners.

With the price of building materials — such as drywall, shingles, lumber, and copper wiring — up an average of 26%, homes have become more expensive to fix and replace. According to a survey by the National Assoc. of Home Builders, this is the largest single-year increase in the survey’s history. Ninety-three percent of contractors are impacted by the increased price of materials, which leads to higher replacement costs when insurance claims are filed.

 

Increased Shipping Costs and Delays

The pandemic has impacted almost every part of the global supply chain, causing shipping delays and higher prices. When shipping ports get overwhelmed and backed up, it impacts the time it takes to get materials to homeowners and the cost of delivering the materials.

From appliances to plumbing fixtures, it’s taken weeks and months longer to get building supplies, which previously had taken days to procure. In fact, 94% of Fortune 1000 companies have reported supply-chain disruptions from COVID-19.

Globally, RBC Capital Markets reported that 77% of ports are experiencing abnormally long times to turn around traffic. In fact, Freightos.com marketplace data shows that, in September 2021, China-to-U.S. ocean shipments took an average of 73 days to arrive at their final destination, 83% longer than in September 2019.

 

Higher Labor Costs

Builders often hire subcontractors who handle electrical, drywall, plumbing, and other areas of construction. With the current labor shortages, higher costs are needed to secure skilled laborers or obtain the needed materials. This, in turn, has forced home builders to factor in higher costs for construction and remodeling work.

Eighty-nine percent of contractors are having a hard time finding craft workers, and 88% of firms are experiencing project delays. Additionally, the U.S. is seeing a drop in the number of Americans becoming tradespeople. The National Electrical Contractors Association reports that 7,000 electricians join the field annually, but 10,000 retire. This shortfall results in higher prices and longer wait times for home projects.

 

Auto Insurance Affected, Too

Home insurance isn’t the only coverage impacted by current trends. Auto insurance is also experiencing increases due to national trends. Used-car prices are up 40%, the cost of labor for repairs is up, car parts are costlier and harder to obtain due to supply-chain issues, and rental car costs are up 30%. These factors and others are contributing to a rise in auto-insurance rates.

It might be time to review your home and auto policies with an agent to make sure your coverages are appropriate in the current inflationary market.

 

Lisa Johnson is chief operating officer for Amherst-based Encharter Insurance; (413) 658-3410.

 

Sources: NAHB, AGC, Accenture, U.S. Bureau of Labor Statistics, AutoRentalNews, CCC Intelligent Solutions, CNBC. All products are underwritten by The Hanover Insurance Company or one of its insurance company subsidiaries or affiliates. This material is provided for informational purposes only and does not provide any coverage.

 

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