Over the past year, inflation has become a growing concern, and with good reason: According to the latest data from the Bureau of Labor Statistics (BLS), the Consumer Price Index for all urban consumers surged by 7.9% in the last 12 months—representing the largest increase over this amount of time since 1982.
Inflation issues could create a number of insurance challenges for high net worth individuals, particularly in ensuring adequate coverage during these difficult market conditions.
Key Causes of Inflation
Several factors have contributed to rising inflation concerns—namely, widespread labor shortages and supply chain disruptions amid the ongoing COVID-19 pandemic.
- Labor shortages—A recent study from the Society for Human Resource Management found that almost 90% of businesses are having a hard time filling open positions. These labor shortages have led to substantial struggles for businesses, often causing production or project delays and forcing some employers to increase their salary offerings to retain or attract workers. Such trends have ultimately ramped up overall labor costs and created subsequent inflation concerns.
- Supply chain disruptions—In response to supply chain concerns, the costs of many items and materials across industry lines have soared to help offset demand, thus contributing to inflation issues.
Impact on the Insurance Market
Rising inflation concerns can pose several difficulties in the personal lines insurance market.
- Property—Within the property insurance space, the cost to repair or rebuild structures following a loss has soared, as worker shortages within the construction industry have led to increased labor costs.
At the same time, supply chain issues related to various essential building materials caused the price of these items to skyrocket, including:
- The costs of lumber and steel have more than doubled during the pandemic
- Increases have also occurred over the past year for a number of structural elements—including floor coverings, window coverings, major appliances and overall construction materials
- Auto—In the auto insurance market, vehicle repair expenses and subsequent claim costs have surged due to the difficulties service and repair centers are having in obtaining the necessary parts. Compounding claim costs, accident frequency and severity have jumped in recent years, emphasized by rising crash rates and increased medical treatment expenses.
Amid elevated loss costs, insurance carriers may begin to increase policyholder premiums and introduce additional coverage restrictions. With heightened repair and rebuilding costs increasing overall claim severity, policyholders may also encounter potential underinsurance concerns following larger property losses.
Kapnick Can Help
It’s important for individuals with high net worth to be proactive in reviewing their insurance coverage at year end, and ensure they have the right policies for the life they’ve worked so hard to build—especially in times of uncertainty. Kapnick can help.
Some of our solutions include:
- Have policy renewal conversations early. Especially amid these challenging market conditions, working together will give us ample time to prepare for potential policy changes—particularly as it pertains to pricing—prior to renewal.
- Review coverage terms and conditions to ensure you fully understand coverage terms and conditions, paying attention to any exclusions. It’s especially important to assess your policy limits (and sub-limits, if applicable) to determine whether you will be adequately covered following a loss. If we identify underinsurance issues, we may want to update your coverage and consider purchasing policy endorsements to maintain proper protection.
- Reassess property valuations. With property repair and rebuilding costs on the rise, confirm that the values in your policies would actually be able to cover current expenses after a loss. Otherwise, outdated values could leave you underinsured if the cost of repairing or rebuilding exceeds your existing coverage limits.
- Ensure adequate risk management practices to prevent potential claims. Unsure of where to start? Talk to your broker about techniques to mitigate your risks and prevent loss before it occurs.
You’ve worked hard for the life you’ve built, which is why it’s vital to protect it with adequate insurance. Don’t suffer the devastating consequences of inadequate coverage in the event of a loss. Rather, make part of your year-end tasks to work with experts who understand your unique needs and can offer the best possible solutions for when disaster strikes.