Insights and Indicators Wildfires, Inflation and Pandemic Drive Up Insurance Rates – InsuranceNewsNet


Inflation, labor shortages, the effects of the lingering COVID-19 pandemic and increasingly devastating fires are driving up the cost of insurance for homes, cars and businesses.

“Everything,” Sunnyvale insurance agent said Steve Nelson“increased.”

The pandemic and the high cost of living, especially in the bay area, have exacerbated the shortage of construction workers and, combined with inflation in the price of building materials, insurers are responsible for increased replacement costs when homes and commercial buildings are destroyed or damaged. So homeowners’ premiums have increased by 20% to 25% over the past three years, Nelson said, adding that business policies vary so much that it’s not possible to specify the increase precisely. Car insurance pricing also depends on several factors, including postcode, but Nelson estimates it has risen by around 15% in recent years, despite drivers taking a break at the worst of the pandemic.

Huge home insurance payouts by insurers after wildfires caused some providers to flee areas at risk of Californialeaving fewer businesses in the bay area and the state, with more risk in their portfolios, causing them to charge higher prices, said Nelson, co-owner Nelson/Nelson Insurance Services with his cousin jason nelson.

The two Nelsons represent the third generation to run the business, after Nelson’s grandfather, Buford, founded it just after World War II. This news agency spoke with him about the state of insurance coverage at a time when prices are rising dramatically for virtually all consumer goods. His comments have been edited for length and clarity.

Q How has the COVID-19 pandemic affected the insurance industry in general, including home, auto and business?

A The insurance industry as a whole has become much more automated. Automation has given people (in the insurance industry) the ability to work from home, but I think the level of efficiency has gone down a bit. In some ways, this sped up the process; in other ways it has slowed our ability to come up with new policies and be effective — it’s kind of a trap. Insurance is a bit slow on the digital side of things, apps, things of that nature. We do a lot of it on the computer, but there are a lot of parts and elements where we still had to enter information and fill it out…on a PDF form by hand. Many things have changed. They have automated it, where they pull this information from other sources.

Q How has the COVID-19 pandemic affected auto insurance when so many people have shifted to working from home?

A lot of companies have stepped up and automatically lowered the mileage people travel per year – it’s all based on miles traveled for your rates. Some companies gave discounts, other companies… automatically based everyone on 3,500 miles per year.

Q What has happened to these discounts now that many people have resumed their previous driving habits?

A This has been removed now that things are reopened. Everyone is charged based on their normal driving habits. Some people who work remotely, we keep them down – they just have to provide proof, like mileage records.

Q What affects home insurance?

A What really struck people in California are the long-term effects of several years of large fires – there is certainly a trickle-down effect in insurance. Even if you are not in a high fire risk area, in insurance we share all the risk. These fires have driven businesses out of areas they previously covered. Many companies have just decided: “We are no longer going to insure in these areas. Because there are fewer insurance companies, (the others) take on more risk, which has driven up costs. Where we didn’t have much trouble getting insurance in places like Saratoga Where Los Altosor the hills of redwood town and some areas of Fremont and Milpitanow there are times, even in Morgan’s Hillwhere we will submit something that any company would have taken, and they say no.

Q How does inflation affect the insurance market?

A Real estate is the hardest hit by rising costs. Whenever we write a home insurance policy or a rental policy or any type of situation where the client covers the property, we have to assess the cost of rebuilding it. Labor prices really exploded in California, and material prices. Gasoline prices adjust because transporting these materials is expensive. And we have the cost of not having enough material, due to supply chain issues. A few years ago, if I estimated the cost of replacing a three-bedroom, two-bathroom home, the cost would be approximately $300 at $350 one square foot. Now you’re looking at this three-bedroom, two-bathroom home that costs $400 at $450 per square foot.

Q What happened to business insurance costs during the pandemic?

A large part of their costs are related to their income: if you are a restaurant and you serve $100,000 value of food per month compared to $700,000, your risk is lower. If your risk goes down, we go to the company and take care of it. Any business or any type of business that had a reduction in revenue and their policy was based on that had the ability to step in and do that. We had a few small businesses, like hair salons – some of them that couldn’t open called us and canceled their policies. A lot of these people… came back when they were able to open.

Q What advice do you have for consumers regarding insurance?

A Pay attention to your insurance policies. Look at what it cost before, what it costs now. Make sure the coverage amounts are correct. Call your agent and shop around. There’s no harm in sending it out to several other companies and seeing what someone else has to offer and learning a bit about how it works. Get three or four quotes. Try a few different agents – maybe someone like us is independent and can shop in different places. Most people have no idea how insurance works for a homeowner, or even for a car. What is good for one person is not necessarily good for another. It’s not just about saving money, because in the long run it could cost you quite a bit. The Department of Insurance (of California) has a lot of information for consumers online.


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