In 2023, inflation has still been increasing. Whilst the rate of inflation has more than halved from 11.1% in October 2022 to 4.6% in October 2023, inflation is still high and the cost of living is an ever-present worry for many households up and down the country. The impact of inflation is being felt across the insurance sector, with inflation affecting policies, premiums and consumer habits. So what has changed in 2023 when it comes to inflation and insurance?
The increasing price of everything including labour costs, materials and utilities has not just had an impact on household budgets and businesses, but they’ve also had tangible impacts on the insurance sector. The increase in prices means the level of payouts have either increased or customers are being underinsured, and that’s before we consider policies that include clauses for replacement items.
For example, if a policyholder has insurance for a classic car which includes cover for replacement parts and labour costs, then inflation means that the price of the parts has increased. And with wages and business costs rising, the price of labour has increased too. This will either mean that payouts are disproportionate to the level of cover, or the policy won’t be enough to cover the policyholder for the fixes required.
With the cost of living crisis still rumbling on, people are assessing every area of their lives where they can cut back on spending. One such area is their insurance. Policyholders are now more likely to shop around to find the best value deal for their insurance as they look to trim their household budget.
In the past, a renewal on an existing policy would have been easier, with customers more than happy to renew their existing policy rather than deal with the hassle of starting a new policy with a different insurance provider or broker. However thanks to the cost of living, the prevalence of comparison websites and instant policy calculators; customers aren’t as loyal or nonplussed as they used to be.
And that’s not the only way inflation is affecting renewals. With household budgets at a squeeze, policyholders may look to save money by cancelling policies altogether or reducing the amount of cover they have in order to reduce their monthly payments. It’s because of this that it’s more vital than ever to ensure that customers are getting suitable policies which have cover in the right areas at the right levels. You may also have to explain in more detail the virtues of specific areas of cover and why they’re important to have.
With the level of inflation we’ve seen in the past couple of years, this has exacerbated the risk of individuals and businesses being underinsured. Being underinsured is where policyholders don’t have the right level of cover in their policy to give them the protection they think they have, or may have had.
One of the biggest areas of underinsurance is with homes. The price of homes are still continuing to rise, which is even being reflected in the increase in interest rates to curb inflation, leading to an increase in monthly mortgage payments.
With house prices continuing to rise (and even if the rise is slower, it’s still a rise), it increases the risk of a policyholder being underinsured. If cover was taken out a few years ago, then it now may not be sufficient to cover the latest price of the house. And with the increase in labour and building costs, the price of repairs is also much more than it was a few years ago.
At The Yorkshire Broker we’re fully aware of the impacts inflation is having on policyholders, whether it’s individuals with private policies or businesses who require protection. Whether you’re looking for a new policy or want to avoid the risk of being underinsured, you can talk to us about your existing policy and find the best solutions to ensure you have suitable cover going into 2024.
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