After many years of relatively low and stable inflation, the latest economic forecasts suggest the cost of living is on the rise once again in Australia. The annual CPI inflation rate rose to 5.1% (March quarter) and is projected to be between 6% – 9% over the coming year, placing pressure on people and businesses. Indeed, gain has increased 65% and we’ve seen this with record-high petrol prices, and the knock-on effect to freight costs, as well as a wide range of groceries.
Of course, insurance is not immune from inflation. Given the impacts are felt by virtually every industry, either directly or indirectly, it’s a useful time to ask: what does rising inflation mean for your insurance?
Upward pressure on premiums
Insurers consider a wide variety of factors when setting their premiums. One that often has a very direct impact is the cost to repair and replace assets in the event of a claim. Whether it’s vehicles, equipment or property, when these costs increase, so do premiums – and that’s where inflation comes in. A period of higher inflation will almost certainly mean higher material prices, labour costs and replacement values. Unfortunately, this all points to higher premiums.
What can you do if premiums rise?
When cash flow is tight, we understand it can be very tempting to reduce, or even cancel, policies in order to offset rising insurance costs. Our advice is simple: please be very, very careful. There are always options when it comes to insuring and managing the risks your business faces, so speak with an insurance professional well before making any major changes to your current insurance arrangements. Otherwise, you could find yourself avoiding one problem, only to create a potentially larger one and exposing your business.
Contact LA Insurance for more information on protecting your business.