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What Surging Inflation Could Mean For Insurers

June 13, 2022, by New City Insurance

inflation across the globe conceptRising inflation has been a major concern across the U.S. economy the past year, and its effects are being felt strongly in the insurance industry. The impact of inflation is creating major challenges for the commercial insurance market, affecting not only insurers but also policyholders. What will the current economic state mean for insurers moving forward?

Inflation In The U.S.

Data from the U.S. Bureau of Labor Statistics shows that the Consumer Price Index (CPI) for all urban consumers rose by 7% in 2021, which is the biggest increase seen across a 12-month period since 1982. In April 2022, inflation climbed 8.3% from a year before, approaching a decades-long record high.

The inflation at the moment largely stems from labor and supply trends spurred by the COVID-19 pandemic.

Labor Shortages

Labor shortages have occurred in nearly every sector in the past year. Almost 90% of businesses were struggling to fill open positions, according to a recent study from the Society for Human Resource Management.

The impact of the pandemic prompted many workers to reassess their employment priorities and place a higher emphasis on having a good work-life balance. It has also made many unemployed people cautious about returning to the workforce, as evidenced by the fact that the proportion of individuals who have been out of work for six months or more has reached its highest point in six decades.

These labor shortages have caused production and project delays for companies and forced some employers to offer higher salaries in hopes of attracting or retaining workers. This has ramped up labor costs overall and is feeding inflation.

Supply

A broad range of supply chain disruptions have occurred since the pandemic began. Many of these problems stem from higher demand for certain items and materials against the backdrop of a slowdown in production and limited availability due to pandemic-related closures.

supply chain conceptHowever, even as many businesses have now resumed normal operations and increased their production, consumer demand for some materials and goods continues to outpace inventory, due partly to more Americans making big purchases thanks to savings accumulated throughout the pandemic. In response, the costs of many materials and items across industries has risen to offset demand, and this is also contributing to inflation.

The federal government and economists are hopeful that supply chain conditions will improve in the second half of the year and ease inflation concerns. However, the ongoing labor struggles and other enduring impacts from the pandemic are widely expected to keep inflation above pre-pandemic levels through at least next year, which means inflation may continue for quite some time.

Inflation and Insurer Cost

How will this inflation impact insurer cost? In the past, when prolonged inflation was more prevalent in the 1970s and 1980s, the commercial insurance market faced reduced reserve levels, weaker underwriting performance, and unpredictable trends in claims. All of these factors resulted in major losses for insurers as well as coverage challenges for policyholders.

Experts note that the insurance industry today is currently in a better position to sustain losses to reserves than it was in the past. In addition, advancements in financial reporting have provided insurers with a better ability to identify and respond to losses.

The major concern with the current economic environment is the uncertainty surrounding how long current inflation issues will last. These questions have the power to threaten the insurance industry’s reserve levels’ long-term stability as well as underwriting profitability.

Trends In Commercial Property Claims

Within the commercial property insurance market, costs for repairing and rebuilding structures after losses have risen significantly due to higher labor costs associated with construction industry worker shortages. Supply chain issues pertaining to essential building materials are also causing costs to rise, with the National Association of Home Builders reporting that the costs of both steel and lumber have more than doubled throughout the pandemic.

Inflation is also present in the construction sphere in the substantial CPI increases recorded in the last year for structural elements such as window coverings, appliances, construction materials, and floor coverings. These elevated property loss costs may cause poor underwriting review results. This, in turn, may spur a rise in policyholders’ premium expenses, along with additional coverage restrictions. Policyholders might also face underinsurance concerns in bigger property losses.

Trends In Automobile Claims

Another example of the impact of inflation is in the commercial auto insurance market, where vehicle repair expenses are rising and impacting claim costs. Worker shortages within the auto industry are elevating labor costs, while supply chain disruptions for many critical vehicle parts as well as vehicles in general are pushing prices upward. The Bureau of Labor Statistics has noted an increased CPI in the last year for auto parts, used cars and trucks, and motor vehicle repairs.

view of writing on clipboard while insurance agent examining car after accidentAt the same time, the frequency and severity of accidents have risen in recent years, with increased crash rates and higher medical treatment expenses being noted. These higher loss costs could result in lower profits for auto insurers, which may prompt them to raise premiums and restrict policyholders’ coverage offerings.

Although inflation is currently having the biggest impact on the auto and property insurance markets, prolonged inflation is expected to start affecting other segments as well, such as liability insurance and workers’ compensation insurance. As a result, insurers could struggle to maintain insurance pricing in the face of more volatile trends.

In response, insurers might be forced to continue raising overall premiums and making other adjustments to coverage to prevent unanticipated loss costs.

How Inflation Is Affecting Group Health Insurance

Another effect of soaring inflation is a rise in group health insurance costs. Healthcare facilities are paying more money for their supplies and utilities, not to mention employee costs. This means patients and insurers need to be charged more for services to offset these growing expenses.

The costs of physicians’ and hospital services were already on the rise in 2021, and that trend seems likely to continue. The burden of these costs will be shouldered by employers and employees alike, and many employers are trying to find ways to control costs. For example, workplace wellness programs and reference-based pricing are helping some employers to better manage their healthcare spending.

Impact Of Catastrophes On Claim Costs — Demand Surge

Another factor to consider is demand surge, which is the increase in rebuilding costs resulting from the magnitude of a natural disaster compared to normal times. The general benchmark for demand surge is an increase in cost of 20% to 30% after a disaster, although estimates can vary depending on the event, materials, and location.

One of the most basic drivers of demand surge is the number of property repairs or full rebuild needed in a certain area after a major disaster. Some events may cause broad damage across a vast geographical area, resulting in a large number of filed claims, while others are more severe and lead to costlier and more complex claims.

It is important to note that natural catastrophes can strain infrastructure significantly, obstructing the supply chain that is needed for bringing materials to the impacted area and pushing prices upward. Labor prices can also rise due to a lack of providers and contractor shortages. At the same time, catastrophes put strains on insurance claims’ staff and can result in a shortage of claims adjusters.

Insurers have found ways to address the potential impacts of demand surge, but many of them are vulnerable to the effects of the current pandemic-related inflationary environment.

How Employers Are Coping

insurance premium calculation conceptThe strong possibility of rising premium costs in response to ongoing inflation, along with underinsurance and coverage restrictions concerns, mean that employers are having policy renewal conversations early. Many are working with their insurance advisors to discuss coverage renewals in advance so they have ample time to prepare for any potential policy changes, especially when it comes to pricing. Some are holding quarterly meetings with insurance professionals to stay on top of the evolving inflation landscape.

Many employers are also reviewing the terms and conditions of their coverage, paying particular attention to exclusions and whether or not their policy limits are adequate. They are also ensuring they have effective risk management measures to reduce or prevent potential claims.

How New City Can Help

To learn more about how the current economic climate is affecting insurance for businesses, reach out to the commercial insurance and benefits consulting professionals at New City.

Have Additional Questions?
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New City Insurance
New City Insurance
5.0
Briar Schwartz
Briar Schwartz
05:38 10 Apr 25
Working with the team at New City Insurance was a great experience, couldn’t recommend it enough. Being completely new to the insurance world, both Clayton and Eric were thoughtful and kind, and most importantly patient with my many questions. All in all 5/5 stars. Thank you New City!
Iris deBruin
Iris deBruin
03:24 10 Apr 25
The team at New City was incredible. Clayton walked me through every step, made everything easy to understand, and was always there when I had questions. I felt supported the whole way through—can’t recommend them enough!
Lea R
Lea R
22:46 09 Apr 25
New City was outstanding from start to finish. Incredibly professional, responsive, and genuinely caring. They made everything easy to understand and completely stress-free. Couldn’t recommend them more!
Brooks Chiongbian
Brooks Chiongbian
21:21 07 Apr 25
I ran into an issue with our carrier and Nick got right to the bottom of things. He and his team were incredibly responsive and helpful, making what could have been a frustrating situation so much easier to handle. They really went above and beyond to make sure everything was resolved quickly and smoothly. I’m super grateful for their support and highly recommend New City Insurance to anyone looking for a team that truly cares about their clients!
Elizabeth Teposte
Elizabeth Teposte
23:35 02 Apr 25
My Experience with New City has been amazing. Team Eric has been great, especially Nicholas Rebis their follow up time is a 10/10. I'm currently helping an employee out with her questions and have been running to Nicholas, before I say bye to our team member, letting her know I will follow up as soon as I hear something, I see his response. Thank you to the team for making it easier for me to assist our employees during difficult times.
Chelsea Antczak
Chelsea Antczak
17:54 02 Apr 25
New City Insurance is an outstanding company that genuinely prioritizes its clients. They are professional, highly knowledgeable, and always delivers the best solutions. I highly recommend them to anyone seeking a trusted insurance advisor who truly has your back.
Stephanie Gillon
Stephanie Gillon
19:16 22 Mar 25
I'm here to tell the world to look no further in your insurance search! Seriously, this company is it. I am beyond impressed with the skill set of this team. They are extremely motivated and dedicated to helping their clients and offer top-tier service. I was treated with such care and professionalism throughout our entire interaction together. Thank you, Eric and team, for being so thorough, kind, and efficient while helping me find the lowest prices possible!
Roshaun LaForce
Roshaun LaForce
23:06 20 Mar 25
New City Insurance has such a great team. They genuinely care about their clients and make the whole process easy!
Alec Remington
Alec Remington
00:54 20 Mar 25
A great team of hard workers. My experience with them has been nothing but positive. Highly recommended.
Morgan Ostrander
Morgan Ostrander
16:00 19 Mar 25
Great team to work with! They lowered our costs and have provided excellent service.
Zach Baker
Zach Baker
15:19 19 Mar 25
Eric and the team at New City Insurance are truly top-notch. It’s clear they genuinely care about their clients and work hard to provide the best service possible. Their integrity and dedication really set them apart. Highly recommend!
Momo Furusho
Momo Furusho
13:24 19 Mar 25
New City is run by not just a competent team, but people who genuinely care about providing the best service possible. Eric Calciano is a gem!
Allie B
Allie B
19:34 04 Feb 25
Excellent service and support from start to finish! The NCI team is professional, responsive and truly cares about their customers.
Deana Hartland
Deana Hartland
16:04 14 Jan 25
These guys are great and definitely go above and beyond. We were overcharged for a surgery that my husband had in Aug 2024 due to the contract that they had with our health insurance. It was very difficult trying to work and deal with trying to get this refund back from the surgical hospital we went to. A lot of playing phone tag with them. My husbands HR team got "Nicholas" involved and OMG.....he just handled everything. He stayed in constant contact with me via email on every step of the way. Eventually he was able to get this money refunded that was $997. He has been on top of it from day one. I must say he took all of the stress off of me dealing with this situation during my working hours and went ABOVE AND BEYOND the call of duty. I am so happy they got involved and relived me from dealing with this and the stress it would've caused me. You will be very blessed working with a company such as this. Keep doing what your doing!
Justin Hoffman
Justin Hoffman
02:52 17 Oct 24
Always quick to respond. This team is up early and late.
Roger
Roger
16:30 30 Aug 24
Eric Calciano, is as sharp and knowledgeable about health benefits and insurance, as anyone I've ever come across. If you need any kind of benefits analysis I highly recommend him and his firm. He is easy to work with and highly professional.
Timothy Burke
Timothy Burke
04:02 30 Aug 24
I don't leave reviews often, but this one is well deserved and overdue. Clayton provided services to my company prior to his move into the insurance world a few years ago. Always being incredibly impressed with his talent and strong communication skills, I decided to switch our insurance broker and give New City a shot. That turned out to be a great move.The first year, Clayton actually jumped on a plane and flew from Oregon to California just to be onsite and administer open enrollment for my 45 employees. Clayton, Eric, Jeff, Brendan, and the entire team have been a pleasure to work with over the years. The communication, response time, and insurance knowledge is second to none in my opinion. A legitimate 10/10. They are great listeners and strive to really understand the needs of their customers.I'm very selective about giving referrals and making recommendations, but New City has never disappointed. If you are reading these reviews to help make your decision on selecting an insurance broker, this team is 100% a solid option. And if you don't believe me, just look at the other reviews.
Megan Ketter
Megan Ketter
19:48 28 Aug 24
Excellent customer service. Brendan and team are professional, timely, and so appreciated when navigating this complicated insurance world. Very thankfully for them! Highly recommended.
Ailene Chow
Ailene Chow
23:15 26 Sep 23
We have been working with New City Insurance since 2019 at the start of our company and has not look back since. They are responsive and proactive when it comes to advise and also market analysis on what's there in the marketplace. Unfortunately insurance benefits costs has been increasing yearly with differences in the percentage of increase . The New City folks reaches out months before the impending increase takes places and help relook into options or recommendations that they see fit. We were a company of 2 to now 7 permanent staff . While we are small , this company still takes care of us well.
Carol Zhang
Carol Zhang
04:29 06 Mar 22
As a rapidly expanding national media organization, the employee benefits strategy and administration that New City has provided us during our growth has been invaluable. They have been proactive about informing us of the different benefit strategies available to us as we grow as well as managing the additional compliance laws and reporting requirements at each stage of our growth.
Claudia Villalobos
Claudia Villalobos
20:14 03 Mar 22
New City Insurance made navigating through all the health insurances super EASY. Their documents are highly informative, professional, and easy to work with. Thank you for making the process of choosing a health plan so simple. You guys are THE BEST!
Philippe Salas
Philippe Salas
17:02 22 Feb 22
I never expected to have a good time talking to an insurance salesman, but let me tell you Brendan was quite the treat. He was very helpful explaining the options and has a wonderful sense of humor. I hope to speak with him every time I call.
Jennifer Polito
Jennifer Polito
17:15 09 Feb 22
Super easy enrollment process. Fast and friendly customer service. If you are looking for an insurance company that is there for you every step of the way I highly recommend New City Insurance.
Rocky Salas
Rocky Salas
23:46 07 Jan 22
So friendly, I hope to speak to him again in all my future insurance needs.
Rocky Salas
Rocky Salas
23:38 07 Jan 22
So friendly and soft spoken. I hope to speak to him again in all my future insurance needs.
Jose Brena
Jose Brena
13:20 06 Jan 22
Eric Calciano has been extremely helpful in finding and selecting the right insurance coverage for our company. With many options out there Eric assisted us on getting a low cost provider saving more than 20% than from our competitors and providing excellent coverage for our employees.
Anastasia Beaverhousen
Anastasia Beaverhousen
17:05 28 Dec 21
Signing up for insurance was quick and easy. Felicity Sundsboe
SFCC
SFCC
22:08 29 Nov 21
Jeff Stoltey and his team provide excellent customer service. Jeff has always provided my company SFCC with straightforward options. I went to a larger insurance company only to RUN BACK to Jeff at New City Insurance. I recommend them to anyone needing insurance without hesitation.
Kevin Luby
Kevin Luby
19:13 22 Oct 21
Quick, easy & informative. We were able to secure quality insurance for our small business on a tight deadline. Thanks for the help New City.
Theresa Ruybol
Theresa Ruybol
19:30 01 Jul 21
Eric was so great with us. He was very patient and kind as we are a newer smaller organization who is growing rapidly. With that said, we had made our inquiry, he had great rapid response and mostly had to wait on me. Any request that we made and/or questions we had, he was great answering and helping us understand. Then when we were ready for all documents and to move forward, Brendan helped with getting that together and the two of them worked their magic on New City's end to notify me of what was needed, assist me in that process and confirming that all was complete and approved for the coverage. I just want to say thank you all again so much, as insurance has always been confusing to me, and you all made that process go a lot smoother.Thank you
Andrea Ordendorff
Andrea Ordendorff
21:06 07 May 21
I've been working with both Clayton and Brendan for well over a year. As the purchase of our dental practice was delayed well over 14 months they both patiently supported me and continued to make themselves available. When we were officially ready to sign up they made the whole process seamless and super easy. This team is highly knowledgeable, professional, supportive, and efficient! I can't thank them enough for everything they've done.
T W
T W
22:32 30 Aug 20
I love New City Insurance. I never had a good experience dealing with insurance brokers until I started working with Brendan. He’s awesome! He is patient with me and takes the time to answer all my questions. I’m very grateful for all his help and hard work!
Mary Jane Deyette
Mary Jane Deyette
00:57 11 May 20
Jeff Stoltey is so awesome...even thru my company had only two employees, he took the time each year to research and find the best plan for us. The only reason I am leaving New City Insurance is because we no longer have any employees. Thank you Jeff
Alma Ortiz
Alma Ortiz
22:25 23 Feb 20
Brendan was awesome! I couldn't figure out how to pick my plan and he returned my call on a weekend to help me. Outstansing service!
jessica kavanagh
jessica kavanagh
19:53 13 Feb 20
Brendan was so helpful I definitely recommend him if you’re in need of good help and getting it done promptly. Thankyou so much again.
Tricia DeYoung
Tricia DeYoung
19:49 13 Feb 20
I was very thankful I inquired about this info. with Brendan. He was very helpful so I understand the benefits available much better now. Thank you Brendan.
B Bayer
B Bayer
17:43 24 Sep 19
NCI handled almost everything from start to finish. Clayton and Brendan made the plans easy to understand and walked me through the application process. They got me my ID numbers before my cards arrived so that I could keep an appointment I had already scheduled. My last broker wouldn't have done that. 5 stars!
Jessica Lehr
Jessica Lehr
03:36 07 Jun 19
Our staff was interested in a health plan, but we didn't know how beneficial a solid employee benefits package would be for our business to expand. We'd lose prospective employees because they had more options for their medical insurance which was sometimes more valuable than more pay. The New City team was amazing and gave us as many affordable options as possible so that everyone had their needs met.
Mike McClay
Mike McClay
19:36 03 May 19
My employer uses New City as their insurance broker, and I'm always amazed when I call in for assistance by how knowledgeable and attentive their staff is with my requests. Their online benefits platform makes selecting insurance plans pretty darn easy. I would highly recommend their services.
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