In the midst of our economy seeing inflation in their purchases, from gas to groceries, many are asking why inflation is affecting their insurance rates. Because like any other good or service, insurance is being affected. In our previous blog, we discuss how inflation of other goods — like building materials and labor shortages — have been a contributing factor to rising rates. According to Insurance Information Institute, Florida premiums are predicted to rise by 30-40% this year. This leaves the simplest option for those on a budget as reducing their coverage for a lower premium.
The unpredictability of Florida is also a factor when it comes to inflation. Premiums rising, especially for property insurance, could occur if there is notable activity throughout Florida's hurricane season (Which often leads to an increase of damages, claims and subsequent repairs). New Florida legislation allows homeowners to file claims three years after a hurricane's initial landfall; so, insurance companies were still paying out claims in 2020 due to 2017's Hurricane Irma.
HOW DOES INFLATION AFFECT FLORIDA HOMEOWNERS INSURANCE?
An insurance company can only pay your coverage limit. To put this into perspective: If your Coverage A (which protects a home's main structure) has a limit of $300,000 then that is the maximum amount you can receive from insurance. This is when inflation comes into play. The limit is based on an estimate of how much it would cost to rebuild your home. Today, with lumber and other building materials seeing shortages, the cost of rebuilding or replacing could actually be much higher than that initial coverage limit. A common misconception is that the resale or market value of your home is the amount at which you should insure your home; in reality, this is separate from the replacement cost of your home and doesn't affect your insurance coverage.
It is crucial to make sure you're not underinsured in the midst of these rising premiums. Senior Vice President of Wiglesworth-Rindom, Mark Rindom, adds "Make sure you the Homeowners Policy has Inflation Guard; since the cost of materials and labor has increased, this helps prevent you from being underinsured."
Inflation Guard is an endorsement that can be added to a policy allowing the insurance company to automatically increase your Building Coverage (Coverage A) by 4% each. Even this has obvious limitations though in unusual inflationary times as we have been experiencing these past few years. Inflation Guard is a help, but today the homeowner should review coverage with their agent who may be able to reassess coverage amounts by using the Replacement Cost Estimator to help make sure your home has adequate coverage.
HOW DOES INFLATION AFFECT FLORIDA AUTO INSURANCE?
This goes for other insurance policies as well. With an automotive microchip shortage, the cost to buy a new car in the case of an accident has caused inflation in the auto industry. Meaning your Auto Insurance limit may not be enough to purchase a new or used car.
Florida legislature does have plans to discuss inflation in the insurance market and consider what can be done to help Florida insureds. Until then, discuss with your agent what the best coverage for your needs are. Independent agents are here to shop the market for you! If you'd like to speak with an agent, you can reach Wiglesworth-Rindom; our agency has been voted the Best in Palm Beach and Treasure Coast. You can start a quote online now by clicking here, or can call our team at 561-637-2424!