Understanding Insurance Inflation: Why are insurance premiums going up?


Inflation has taken the world by storm over the past two years, leaving consumers and central banks feeling the pinch. But like most other goods and services, inflation can also increase the cost of insurance.

Why are insurance premiums going up? The key takeaways:

  • Rising inflation levels has led to growing costs for insurers meaning insurance premiums have gone up.
  • All premiums including car insurance and home insurance have been affected.
  • The main causes of insurance inflation are supply chain issues, rising labour costs, staff shortages and severe weather events which has influenced claims costs.
  • The value of your assets may have increased – we advise you get them valued accurately, if you haven’t already.

The impact of inflation on insurance

In this article, we will delve into the factors that have affected inflation and thus influenced insurance premiums, in addition to how you can protect your assets against inflation.

You’re probably thinking are insurance premiums going up, and you’re right to think that. The key thing to remember is: as inflation rises, so do insurance premiums.

This rise of insurance premiums can be attributed to increasing inflation, which has led to growing costs for insurance companies. With repair costs and claim amounts soaring, the inflation effects on the insurance industry is clear: it means the insurers have no choice but to up their premiums to keep pace.

The Consumer Price Index (CPI) is the official measure of inflation in consumer prices in the UK. In 2022, this jumped to over 10% in 2022 – the highest level in 40 years – and it currently stands at 6.3%, according to the Office for National Statistics as of October 2023. Inflation levels have gone through the roof, there’s no denying that, but it’s promising to see the figure easing with grocery inflation back in single digits for the first time in 16 months.

Home insurance inflation: Why have home insurance premiums gone up?

The UK home insurance market experienced the worst performing year on record in 2022 for insurers, with supply chain difficulties driving up construction and transportation costs for damaged homes. This makes rebuilds much more costly, and the frequency and severity of major weather events only drives up claim costs for insurers, therefore home insurance premiums are affected and go up.

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How inflation levels have been affected

  1. Global supply chain chaos: The pandemic upended global supply chains through factory shutdowns, labour shortages and transportation issues. This constrained the supply of goods when demand rebounded as economies reopened.
  2. Labour shortages driving up wages: Layoffs and staff shortages during the Covid-19 pandemic have led to a tight labour market in the UK across many sectors. Businesses have been forced to raise wages to retain and attract staff. As worker pay increases, this is passed on to customers via higher prices, adding to the inflationary mix.
  3. Currency depreciation takes a hit: Fluctuations in the exchange rate has impacted the prices of imported goods and services from abroad, thus influencing the overall level of inflation.

The bottom line is that costs are way up for businesses in general, and these costs are being passed onto consumers. As the general cost of goods and services goes up, so does the cost for insurers to settle claims, which then gets passed on to consumers through higher premiums.

What you can do to protect your assets

In the midst of inflation, the worth of your personal treasures – be it luxury watches, fine art or antique jewellery – can rise in value without you realising it. This would leave you underinsured if anything bad happened to your assets.

Our advice to you: reassess the value of your assets.

Your home that you bought five years ago and your luxury watch might be worth more now, so don’t get caught underinsured when the storm hits.

By re-evaluating the value of your assets with us, we can ensure you are protected against any risks such as floods or burglary. One way to do this is through a review of your home and contents insurance,

Insurance is there for the maybes that can sometimes become realities, and for that reason we’ve chosen insurers who are known for a really good claims experience and will take care of you if something does go wrong.

Mark Wilkinson, Managing Director at Norton Insurance Brokers comments: “The surge in insurance premiums is shaped by multiple factors. Undoubtedly, the impact of inflation has rippled through every aspect of our lives, including insurance premiums.

“One thing to remember when shopping around for your next insurance policy is to make sure you don’t fall victim to underinsurance. We advise ensuring you get all the necessary cover you need in your policy, and your assets are accurately valued in the event of damage or theft.”

Now, let’s take a look at an example of  home insurance inflation:

Insurance inflation example: Home and contents insurance

Jonathan is a 45-year-old homeowner living in Brighton. He owns a three-bedroom house close to the beach which he purchased for £250,000 in 2017.

He owns the following assets:

  • A luxury Rolex watch, bought for £6,000 in 2013.
  • A rare fine art collection passed down through generations, worth £25,000 in 2017.

Historically, he has not taken interest in adjusting his insurance policy, but after hearing about the general inflationary pressures in the home market and concerns that his watch and art collection may be underinsured, he now decides to get the level of cover that he needs at Norton Insurance Brokers.

He understands that the main reasons for his premium increasing is because of inflation, but he also has concerns over potential flooding as he lives so close to the sea.

Although Jonathan’s premium has gone up, he has complete peace of mind knowing that his prized possessions are now appropriately covered even though inflation affected his home insurance premium.

Speak to us about your insurance needs

By choosing our insurance services, you gain access to exclusive insurers unavailable on comparison sites. We can contact a range of insurers on your behalf, to get you the best level of cover for a competitive price.

Would you like to speak to us about your insurance needs? If so, please fill in the form below and the team will be in touch to discuss our personal-managed insurance services.

    Insurance Inflation FAQs

    Have insurance premiums gone up?
    Have car insurance premiums gone up too?
    What are the main causes of insurance inflation?
    How does inflation affect insurance companies?

    Yes, premiums have increased across the board including for car insurance and home insurance, primarily because of rising inflation levels and increased claims costs.

    Yes, they have. Martin Lewis suggests that car insurance premiums have soared by up to 61%, as of late 2023. Whilst this is a big figure, premiums will vary depending on the vehicle and its risk factor.

    The main causes of insurance inflation are: supply chain issues, rising labour costs, staff shortages and severe weather events which has influenced insurance claims costs.

    As inflation rises, so do insurance premiums. Rising inflation levels affected by rising labour costs and severe weather events has a direct impact on insurance companies as their claims costs increase significantly.