The Cincinnati Insurance Companies
Over the past few years, record inflation has impacted almost every corner of the economy. While the overwhelming media coverage on inflation has lessened, the insurance industry is still feeling its effects.
As the topic of inflation fades from the forefront of our minds, many policyholders are surprised to see increased rates at renewal. Part of the reason the industry may seem out of sync is because of the lengthy process to promulgate, file and implement rate changes in response to market conditions. The time it takes for rates to be filed with and, in most cases, approved by state regulatory bodies or insurance departments, combined with one year policy terms mean policyholders might not see rate changes on their own policies until 12-18 months after the media buzz around inflation has died down.
Increased cost of materials for home and auto repairs along with weather-related catastrophes and other factors have forced the insurance industry to raise rates to remain financially strong so that we can confidently meet our obligations to pay future claims to policyholders.
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Supply Chain Issues
As auto manufacturers struggle to maintain new vehicle inventory, the cost of new cars as measured by the Consumer Price Index increased 12.2% from 2021 to 2022 and 5.8% from 2022 through September of 2023. Unable to find new cars at an affordable price, consumer demand has shifted to used cars where the impact has been even more significant.
Increased Cost of Replacement Parts
The cost of auto parts also went up, causing vehicle repair costs to increase. Generally, car parts are a stable commodity with just 3% in annual increases from 2017 to 2020. But in 2021 there was an 8.5% increase followed by a 16.5% increase in 2022 according to the Producer Price Index.
Higher Home Construction Costs
Homeowners have not escaped the inflation pressures either. Home construction materials pricing increased 35.4% and labor costs rose by 30% between January 2020 and June 2023.¹
Increasing Weather-Related Catastrophes
Through September of this year, insurers have paid over $50 billion in losses related to natural catastrophes. Through October 2023, there have been 24 weather events with industry payouts of over $1 billion each. To put this into perspective, between 1980 and 2022 the annual average number of events was 8.1. Between 2018-2022 the number was 18.1 events.²
Rising Reinsurance Pricing
In addition to inflation and catastrophe losses, reinsurance pricing and retentions have increased dramatically due to a sustained period of unprofitability for the entire industry. The increased reinsurance costs have affected all insurers irrespective of geography and experience.
We understand that conversations with policyholders about large rate increases are never easy. Our rate changes consider both inflationary trends as well as our historical performance, and we do not take lightly the impact this will have on your clients. We continue to work towards creating long-term and profitable growth for you, while maintaining financial stability and the high level of service you and your clients deserve.
Original Content from The Cincinnati Insurance Company Personal Lines Newsletter - December 2023