Is social inflation to blame for our high insurance rates?

Ralph
00:00:00

Are you shocked by your latest insurance renewal? Well, let me tell you, you're not alone. I got one for health insurance the other day and it was insane.

Well, today we're tackling social inflation and its impact on your wallets. Listen, one of my clients just shared how their auto Insurance jumped by 40% this year.

But wait until you hear I helped them slash that increase in half without sacrificing coverage. Stay tuned as we answer the burning question. Is social inflation really to blame for our skyrocketing insurance rates?

Podcast Announcer
00:00:35

Welcome to the Ask Ralph Podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your host, Ralph Estep Jr.

Ralph
00:01:04

Thank you for joining me today. My goal is to help you navigate these challenging financial waters while staying true to our Christian values. I guess I'm acting as your financial guide, and I truly appreciate your time and I appreciate the trust that you put into me. Now yesterday, if you missed the show, I talked about the best apps for building what I call a financial fitness routine. We can all use some financial fitness and if you look at me, I could probably use some physical fitness as well. So if you missed it, I want you to go check it out.

Today's listener question comes to us from Abby, and she is from Michigan it says here. So this is what she wrote. She said, "Dear Ralph, I just received my insurance renewal, and I'm honestly in tears. My rates went up by nearly 50% across the board. Home, auto, everything. The insurance company mentioned something about 'social inflation,' but I don't understand how that justifies such a massive increase. My family is already struggling to make ends meet, and this feels like the last straw. How can we possibly keep up with these rising costs while being good stewards of our resources?"

Well Abby, thank you for your question. And that is a great question. And like I said, all of us are feeling this. I literally just got my health insurance renewal and it's gone up 30% every year for the past three years. That's insane. But today I've got some ideas for you of how you might be able to save some money. Now, you know, this show thrives on your questions, but today I'm going to ask you some questions. In fact, I'm going to ask you a bunch of questions.

I built a listener survey, and I want your honest opinion about the show. We've already gotten some people taking the survey, and I promise you, it will take less than five minutes, but here's the best part. Everybody who takes the survey will be entered into a $250 Amazon gift card drawing. You get to the survey, it's really simple. You go to askralphpodcast.com/survey. And here's the truth. Your answers are going to shape the show. It's going to shape how we move forward with the show. Now, in order to take part in the contest, I need your completed survey no later than midnight on December the 10th, because on December 11th, I'm going to select that lucky person. And you're going to get a $250 Amazon gift card, which will be great for the Christmas holiday and listen. I love to hear from you. Again, go to askralphpodcast.com/survey.

Now Abby, your situation is really all about careful planning and I know I've used this verse from the Bible before. It's from Proverbs 21:5, and it teaches us about careful planning. And when it comes to insurance, it's not simply the money. We need to plan and make sure we have the right coverage. So the Bible verse for today, again, Proverbs 21:5 and it says this. "The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty."

Now, let me tell you about something that happened just last week here at my office. I had a client come in, small business owner, and this particular person owned some local hardware stores. And he had just gotten his commercial insurance renewal. And he told me, he said, Ralph, you're never going to believe this.

My premium has jumped by 65%. The next thing he said, he said, Ralph, I'm not sure how I'm going to be able to keep the stores going with this increase. Man, he was frustrated, and I get it, but more importantly than that, he feared the impact. He was worried about his business bottom line. So let's start today's discussion by talking about just what is meant by this social inflation. I've seen this banded about. And it's not just some fancy term economists use. Because it's hitting real people. It hit you, Abby.

It hit me, it hit my client with the hardware stores. It hits us right in the wallet. In 2024, we're seeing auto insurance rates increase on average. Now this is across the board average, just in 2024. Rates for auto insurance increasing by 35%. And that's nationwide. When we look at homeowners insurance, their climbing by 42% in some states.

Now a lot of that has to do with hurricanes and tornadoes and flooding, but still that's a 42% increase in some states and commercial policies have been soaring even higher. Look at my client, a 65% increase. But here's the little sneaky part that most insurance companies aren't telling you. That there is this thing called social inflation. And it's true.

Those costs are rising due to larger jury awards. There's people, you know, suing them and they're getting more money. And it's also part of this thing if we talk about it, we'll be honest about it is a broader definition of liability. This is real. So it is true. We're seeing larger jury awards.

We're seeing a broader definition of what liability is. But it's really only part of the story. So one of the things you can ask yourself right away, and that's one of the things I'm going to encourage you to look at is you've got to ask am I carrying redundant coverage? That's one of the big questions that we're going to answer today. So let me tell you about Maria. Now Maria is a single mom. I had a zoom call with her last month. And she was telling me about her auto insurance. And she was in tears. She was breaking down because of this. Think about, listen to this. Her cost went from $180 a month to $290 a month. That's a huge increase. It's nearly double. And what did that do?

It cut directly into her budget. So you might be asking Ralph, how did you help her? Well, I'll tell you what I did. I helped her review her policy. And we look through it. We found opportunities to the ways to save money. At the, but at the same time, here's the important part. And listen, I'm not an insurance agent. But I gave her some talking points of what to do and how to change the policy without compromising protection.

But this is something you want to work with a qualified insurance agent, but I can give you talking points. So she reached out to her agent. She met with him. And the first thing they did was they adjusted her deductible. That saved her some money on her policy. They also bundled her policies together. That saved her some money as well.

And she took her, she took advantage of some discounts. She got back in touch with me. She sent me in an email. She said, Ralph, I've found ways to reduce my monthly premiums down to $210. So think about that for a second. She was paying 180. They gave her an increase to 290, but she was happy when she worked with her agent, took advantage of the deductible, bundled her policies, took some discounts and she was able to get it down to $210.

Yes. It's more than what she was paying a month, but think about it. That's $80 a month that she saved according to what it was going to be. And that's sizable. So now you're asking Ralph, how can I better understand these increasing costs? And what good old Ralph always says, knowledge is power. So you got to understand what's driving these increases.

I think we got to start there. So we need to understand if we're going to, if we're going to believe in this social inflation, what is really driving these increases? One of the main things is higher vehicle repair costs. It just is costing more. We're paying more per wages, for the mechanics to work on our cars.

The parts are costing more. The shipping is costing more because fuel was costing more. So it's not shocking that insurance rates are going up because if you have a claim that same repair that you were having done a year ago or two years ago is definitely going to cost more. Another thing we see, and I alluded to this earlier is we're seeing increased natural disaster claims.

And if you've been watching news, you know, we've had these couple of hurricanes gone through and these poor people in North Carolina and in the south, they have really suffered in places that don't usually suffer from these. That's triggering additional premiums because the insurance companies have to pay those claims. We're also seeing rising medical costs. Again, there's a common theme here. Costs are increasing while costs are increasing, then insurance has to increase at the same time to cover those costs.

And like I said earlier, we all, we also are seeing more expensive litigation. And this is where being a good steward of our resources comes into play. Because we're called to be wise with all of our blessings. We also need to be strategic with our insurance coverage. You've probably never thought that on a Christian podcast show, I'll be talking about how we could be strategic with our insurance coverage, but here's some practical steps which have worked with my clients. The first one, talked about this with Maria. Policy bundling. That's when you put your combining and like maybe your home and auto insurance. Many clients are seeing a 15 to 25% decrease or a 20, 15 to 25% savings by combining those policies in what they call policy bundling. So that's number one thing.

Another thing you need to look at is deductibles. A lot of people don't realize this. They just set it and forget it. You got to consider this carefully. You know, if you listen to the show, my grandfather always said measure twice and cut once. And I've helped other listeners. They took their deductible from $500 to a $1000.

It's just an example, right? And see, my opinion is this. And again, I am not an insurance agent. But here's the deal. If you're in an auto accident. The way cars are made today, there is no repair is going to be cheap. So in my view, taking your deductible from 500 to a thousand dollars is not rocket scientists. It's not a rocket science thing. You know, and I had a client that saved $420 a year by doing that. And I said, okay, here's what you do.

Take that money that you save and put that into your emergency fund so that now if you have an accident, your maximum out of pocket was $500, well, now it's $1000. So one of the things I tell clients to do is to make sure you've got that insurance deductible in your emergency fund. That way, God forbid you're in a car accident or your car gets hit or something like that, you've got that deductible money ready to go in your emergency fund to cover it. We just went through this with my son. My son just bought a new truck. He was fortunate. His grandmother gave him some money to buy it. And he said, dad, well, what do I need to do about insurance? He said, insurance is expensive.

I said, yeah, it is an expensive summit. It's one of the things you can't go without. And he says, well, one of the ways the broker told me I could save money is if I increase my deductible from $500 to $1000. Now my son is young. He's a barber. He's just getting started. He doesn't have a huge emergency fund, and I said to him, I said son, that's great, but here's what I'm going to encourage you to do. Make sure you're working on a savings plan to get that money for that deductible put into an emergency fund. You know, this way, you know, finding $500 is sometimes easier than finding $1000.

So again, consider your deductible. Talk to your agent. Look what works best for you. Another strategy here is what I call loss prevention discounts. And see the thing is insurance companies love proactive customers. Look, if they can keep you from having a claim in the first place, that's better for them. So, this is where you're going to consider installing maybe a security system, some water leak detectors.

Maybe you take a defensive driving course. And these can lead to significant discounts. So, those are my things that I recommend right off the top. Policy bundling, deductible analysis and loss prevention discounts. And here's some other strategies I want to talk about now. And this one I call the annual insurance audit.

And this is crucial. Here's the deal. Your coverage needs to change over time. It's just a fact of life. And you might be paying for protection you no longer need. That's just a simple fact, but if you're not going back and look at it, I don't know how many clients I've talked to. I will say to them as part of a, maybe a financial counseling session or something.

Hey, what are you paying for insurance? Well, Ralph, I got this insurance and this insurance. Well, what does it cover? You know, Ralph, I'm not really sure. You don't want to be in that position. You want to go and understand what every single policy covers, look for those redundancies and see if it even makes sense anymore. Because remember this as Christians, we're called to be both faithful and prudent.

We got to do both. We got to wear both of those. So just think about Joseph. Joseph told Pharaoh to prepare during the seven years of plenty. We've got to do the same thing. We've got to be strategic about our insurance planning. And listen. I told you about my hardware store client earlier. When he implemented these strategies, we managed to reduce that 65% increase to just 28%.

Yeah. He's still paying more. You can see why. I just talked about it. Costs are going up. Litigation is increasing. All these things are going on. You're going to pay more. But if you don't pay 65%, isn't it better to pay 28%? And for Maria, those changes meant she could keep her reliable transportation without sacrificing her children's after-school activities. But here's what's really important.


And I want you to hear this clearly. Listen to this. Don't let these increases tempt you to go without proper coverage. It's not the time to cancel your coverage. It's not time to make the deductible something that you can never afford because that's not being a good steward of what God has blessed you with. But what I'm really telling you today is to be proactive. Schedule a comprehensive insurance review.

Look at those redundancies. Ask about every possible discount. And most importantly, make sure your coverage aligns with your current needs. Because what you needed five years ago may not be exactly what you need today. I'm going to share some other strategies with you in a minute, but first, let me ask you this.

We're getting close to the holidays. And are you one of those folks losing sleep about how you'll afford everything on your holiday list? Are you tired of starting every new year buried under a mountain of holiday debt? Do you want to create those magical Christmas memories without that financial stress that usually comes with them?

This stuff is crippling the people. Well, I've got a free guide I'm going to talk about right now and you can discover peace of mind with my free guide. I called it surviving the holidays without going broke. I think it's pretty blunt. But here's where I talk about on the guide. You're going to learn a proven budget system that actually works. I'm going to share some smart shopping strategies that will slash your costs. I'm going to share some ways to create magical memories without maxing out your credit cards, because the truth is I'm going to share with you some ideas that won't cost you much or it can cost you almost nothing. Included in that guide,

I have some tips for teaching kids gratitude in this, what I call gimme more world, all these kids when they gimme, gimme gimme more. Well, I'm going to show you some tips on how to teach them gratitude. And finally, I'm going to round it out with how to keep faith and family at the center of your celebration.

And that's really the key, isn't it. So don't let January's credit card bill steal your holiday joy. Download your free guide now. You get that guide by going to askralphpodcast.com/christmas. And make this your most meaningful and dare I say, affordable holiday season yet. Listen, your stress-free holiday season starts here.

So go get the guide. Again, that's at askralphpodcast.com/christmas. Well now here are some practical applications you can say. Now here's where biblical wisdom meets practical application. That's the whole point of my show. I want to try to tie biblical wisdom and practical application because Proverbs teaches us about being good stewards.

Let's look at some specific actions you can take right now today to honor God with your insurance decisions and at the same time, protect your resources. Let's talk about that hardware store again. And think about this. By implementing that stewardship mentality and managing his insurance costs, we discovered ways to protect his business assets while being financially responsible.

He didn't cancel his coverage. He didn't go walk away from coverages. See, it's not just about cutting costs. If you learn anything today, it's about wise resource management that aligns with those biblical principles. So here's some proven strategies that I put together to honor both your financial stewardship and protection needs.

First thing I'm going to recommend is create a comprehensive budget. You got to understand where insurance fits into your overall financial picture, because that's going to help you make informed decisions. And then you decide on coverage levels and deductibles. Truth is if you have good savings, if you've got good emergency set aside, then you can play with those deductibles and take them higher. Because then you have the resources to fall back tone.

Number two thing. Your broker's not going to be happy. Your insurance is not going to be happy but question every expenditure. Look at every single component. Ask questions. Ask the blunt question, is this coverage necessary? Am I paying for redundant protection? Are there cost-effective alternatives?

This is where you got to press your agent. My poor agent comes to see me once a year and he probably leaves out of here. It feels like he was in a war, but look, I'm fighting for every dollar on that. I'm looking at every component. Do I really need this? Do I really need this? Why am I paying for this?

Why am I paying for that? It's vitally important. Number three thing. Implement risk management. It's those preventive measures we talked about. Look and install a security system. They are dirt cheap now. You can install water leak detectors in your basement or your crawl space. And listen, it's not just about getting discounts and that's great. But it's about being responsible in managing your assets.

And like I said, number four, build in that regular review and adjustment because life changes. It just does. What worked for you five years ago, two years ago, maybe six months ago, isn't the same as what you need. So your insurance has to adjust to that as well. So schedule those regular insurance audits and again, press your agent and ensure your coverage aligns with your current situation. Now, before we wrap up today, I want to emphasize something crucial. I want you to hear this. Managing insurance costs isn't just about saving money. I probably said that twice. But I want you to hear it. It's not just about saving money. It's about being a faithful steward of the resources God has entrusted to us. And listen, social inflation is real. It just is. Costs of everything are going up and it's affecting all of us. But our response is one thing we can cover.

We can handle that. If we respond with wisdom and strategic planning, we're going to be better off. Now tomorrow I'm going to tackle another important topic. And that one is this. And I get this question probably 10 times a week. And that is, should you file a tax return even when you're not required to? You don't want to miss that. Tomorrow

I'm going to talk about some stories you're not going to believe that could really impact your financial future. Now, let me leave you with this final thought. Just as we're called to be stewards of God creation, we must also be wise stewards of our financial resources. Truth is by implementing these strategies we've discussed, you're not just protecting your assets, you're honoring God through responsible management of his blessings. And remember this. As I always say. My passion is to help you achieve financial success. Insurance is part of that. It's something we all need to have. It's something we need to be aware of, but it's also something we can navigate. Because I want to see you live out your dreams.

I want to see you grow in your faith. And I know working together while you come in and listening to the show, giving me your time, we are going to master your finances and we're going to do it from that Christian perspective. So as I always say today, stay financially savvy out there and may God bless you abundantly.

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00:20:26

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