If US inflation reflected rising home insurance costs, it’d be even higher – Orange County Register
If the rising price of homeowners insurance had been factored into the U.S. Consumer Price Index – a key indicator of inflation – it could have added 80 basis points, or about 0.8%. to last year’s 3.4% increase in CPI, according to a Bloomberg analysis. Intelligence.
By not including home insurance, the CPI “ignores climate costs,” BI senior analyst Andrew Stevenson wrote in his April 9 note.
U.S. homeowners insurance costs reached about $175 billion in 2023, up 21% from the previous year, according to insurance brokerage Policygenius. This increase is largely due to climate change, which is leading to more fires, floods and extreme storms. The United States suffered a record 28 weather and climate disasters that caused at least $1 billion in damage last year. While insurers bear higher costs, homeowners face higher premiums. Inflation itself also makes it more expensive to pay claims.
The average cost of insuring a home in the United States last year was $1,905, 50% more than the average of $1,272 in 2019, according to the National Association of Insurance Commissioners and Policygenius.
Calculated by the U.S. Bureau of Labor Statistics, the CPI measures the average change in prices paid by urban consumers for various goods and services, including food and fuel. (“Core CPI” excludes food and energy.) The CPI includes the category “renters and household insurance,” but this is more colloquially known as renters insurance. Last year, the average cost of renters insurance in the United States was $180, an increase of 3% from the previous year.
Stevenson looked at what would happen if homeowners insurance’s $1,905 average received the same CPI weight as renters and household insurance, which accounted for just 0.01% of the overall increase of the CPI last year. It found that the 21% increase in homeowners insurance could have contributed “84 basis points to the index, compared to a 1 basis point gain made by the 3% increase in housing costs.” tenants and homeowners insurance. (One basis point is equal to 0.01 percentage points.)
Just five years ago, homeowners insurance and renters insurance were growing at similar rates year over year. But while homeowners insurance costs have since climbed, renters insurance has remained largely stable. The difference “could be significant enough” for federal officials to “reconsider” including homeowners insurance in the CPI basket, Stevenson writes.
“We are unable to provide insight into custom calculations created outside of the BLS,” Gerald Perrins, a BLS section chief working on the CPI, told Bloomberg Green.
The cost of homeowners insurance in the United States is expected to continue to grow, with average premiums in the United States expected to reach a potential record of $2,552 by the end of 2024, according to Insurify. Researchers at the Massachusetts-based insurance comparison platform attribute the expected increase to increased weather disasters, rising reinsurance rates and high home repair costs.
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