The Expert Podcast

here's area where inflation it may start affecting insurance premiums kind of as a domino effect. so this an article from the Wall Street journal where inflation on vehicle and auto policies could start to kick in for our premiums. meaning that insurance costs are starting to rise partially because US is returning to normal partially because there's higher cost in paying claims. let's say if you have a an auto claim well insurance claims dictate the premiums and if insurance companies have to pay more for rental cars which are in short supply and and higher price more for labor at body shops maybe even replacement vehicles because the used car market has gone up and new cars are short supply the insurance claim may be higher for an auto claim. same with homeowners if you have a damage to the to your property because of lumber prices have increased labor prices have increased the cost of that claim may be higher so the insurers have to factor that into premiums to maintain a viable business and and sound financial retention. the question for insurers as to whether premium increases will be big enough part of the cost of covering claim to repair replace the cars under pressure. global chip shortage scarcity rental cars increased price of lumber meaning that especially for property and casualty which is home auto those types of things the inflation is hitting that area much harder. it's not clear how quickly people to the old driving habits and what will that do to accident frequency frequency. certainly there won't be as much driving more people work from home even it even part time but the cost for an actual claim is going to be much much higher. longstanding trade to could come to the forefront insurers is long term challenges for severity of losses for commercial auto more sophisticated technology in within vehicles a makes repairs and replace more costly. insurance have been trying to keep up with other types inflation called social inflation meaning higher jury awards. think about the the social mood of the market right now of what people think a damage causes in terms of pain and suffering in terms of losses in terms of financial consequences to a family or person. jury awards could be higher right if you had to guess if they're gonna be higher or lower than than five years ago I think most people would say would be higher because most people feel like a loss is more of a catastrophic event. for some types of policies such as home sustained inflation can be priced into renewal terms there are however businesses for which premiums collected today have to cover years of future claims. if wage inflation occurs commercial policies such as work comp could be through the roof. the fact that labor markets are in turmoil real estate markets are high demand and the vehicle supply chain is something it's never been before this is gonna affect the insurance claims and then by extension premiums for many years to come. the hard part for insurers is figuring out actually what to predict for the coming years. like the article said for homeowners are auto for a personal lines it's a little simpler we're on commercial lines there maybe longer tail events that could really need re pricing in the market today to compensate for potential losses and risks for many many years to come something insurance companies may not know about. so it's a little bit of a guess and insurance companies have to really maintain solvency so they got to do their best to figure out what that best guess would be but the same time not throwing premiums out of whack to make their sales less competitive.