I hate to start out on a sour note. But I don’t think we’re done with inflation just yet.

I have a very bad feeling it’s headed higher still, all thanks to rising insurance costs.

We all know those expenditures have skyrocketed in recent years. None of us like it, but it’s an inescapable fact, nonetheless.

Only a week and a half ago – before Hurricane Milton even formed – the National Bureau of Economic Research released a report that said:

Average property insurance premiums have risen by more than 30% since 2020, and there is wide variation by location. Premiums have risen the most for homeowners in areas with the highest risk of natural disasters such as hurricanes and wildfires.

Unfortunately, those areas seem to be increasing. And intensifying along with it.

To quote the article further:

While premiums have always been higher in riskier locations, the relationship between disaster risk and premiums has grown stronger over time. If present trends in the incidence of natural disasters continue, premiums are likely to continue to rise.

I’m not going to get into the climate change debate here. While worsening hurricanes may or may not be the product of global warming, increasing wildfires are far too often manmade.

For instance, an official conclusive report finally – more than a year later – came out about the horrific Maui incident that killed over a hundred people and caused $5 billion+ in damages. Oddly enough, conducted and compiled by the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), it found that broken power lines were to blame.

(If someone can explain why the ATF was in charge of this, I’m all ears.)

The same has been true of far too many California wildfires in recent memory. And Brian Paré admitted to a Quebec court this past January that he started 14 of his own blazes, which forced hundreds of people to evacuate.

Outside the court, he apparently couldn’t even remember how many he had set.

One way or the other, climate change or not, I’m afraid the conclusion remains the same. Which is us paying more for insurance.

And that, in turn, will end up boosting the prices of everything else.

We’re Paying Dearly for Coverage These Days

It’s not just home insurance that’s going up, of course. Car insurance has skyrocketed as well.

That’s up 16.5% between August 2023 and August 2024, according to a recent BLS Price Change in the CPI report. It’s a mind-boggling difference at first glance. Though, after further consideration, I guess it makes some sense.

Electric vehicles, for instance, can present massive expenses when they crash. Hit the right way, their highly combustible batteries catch on fire and total the cars. There’s also the rise of uninsured drivers on the road – which someone somewhere has to pay for in the case of unfortunate events.

Since car insurance companies are in the business of making a profit, that means they pass those costs onto their customers. It’s just the way capitalism works.

With that said, car and home (or renters) insurance hikes really only end up hurting direct consumers. They come with a single punch right to the driver or homeowner’s wallet.

Nobody else suffers.

That’s not the case, however, for commercial real estate (CRE), particularly retail-oriented outlets. When, say, a strip mall-situated store finds its coverage costs rising, it knows exactly how to decrease that increase…

It changes its price tags. And not to the downside.

 (The strip mall itself will almost certainly be operating with a triple-net lease, which means it doesn’t pay for insurance at all.)

CRE Daily, a phenomenal commercial real estate publication, wrote on the subject just two days ago. “Rising Insurance Costs Squeeze CRE as Hurricanes Intensify,” the headline announced.

The tagline: “Struggling landlords and developers face soaring insurance costs due to natural disasters, adding to post-pandemic pressures.”

And the actual article includes these unfortunate paragraphs:

While homeowners are already familiar with natural disaster-driven insurance premiums, commercial property owners in coastal areas face even sharper hikes as hurricanes and floods push insurers to raise rates or exit vulnerable markets altogether.

According to insurance brokerage Marsh McLennan, premiums on commercial properties rose 11% across the country in 2022, with storm-prone regions like the Gulf Coast and California seeing up to 50% hikes. In 2023, these premium spikes doubled, in some cases.

As a landlord, a CRE-renting business owner, and a consumer alike, I can tell you right now… none of that sounds, looks, or feels good. Not one bit.

Hurricane Milton Hasn’t Helped, to Say the Least

It’s Thursday morning as I write this, so we don’t yet know the full extent of Hurricane Milton’s physical damage. That will come out over the next hours and days.

Several deaths have, however, already been confirmed. And we know the storm spawned over a dozen tornadoes that ripped through trailer parks.

Now, it could have been so much worse. I am so grateful it only hit Florida as a Category 3 hurricane instead of the “brand-new” designation 6 being bandied about before.

Truly. The whole country should be thankful for it.

But there’s still so much damage done, especially on top of the chaos and heartbreak Helene caused less than two weeks ago. Moreover, there will be months – perhaps even years – of complications from this one-two hit.

Newsmax was already reporting yesterday afternoon that “Hurricane Milton threatens to swamp Florida’s troubled property-insurance market, potentially pushing prices higher and threatening coverage in a storm-prone region that already has the highest insurance costs in the nation.”

Home insurance providers might end up doing what they’ve already done in parts of California… leaving it entirely. And as for the CRE side of things, there are plenty of other ways to squeeze blood from a stone.

Going back to that CRE Daily report, it explains how “Building owners find themselves trapped between insurers and lenders, unable to make even minor adjustments to insurance policies.” It’s the insurers’ way or the highway.

I’m not trying to pile on insurance companies here… even if I’m not exactly happy with them, as I try to figure out the best way to cover (comparatively mild) damages to my house done by Helene.

But we need to understand where we’re headed from here as best as we can.

These traumatic events will most impact high-risk states like California and Florida, of course. They already have. However, considering how much product is shipped to and/or stored in warehouses in those states before making their way to the rest of the country…

Prepare for inflationary impacts no matter where you are in the U.S.

The September inflation report can say whatever it will. But November, December, and the incoming new year are going to tell their own stories in their turn.

And I don’t know if we’re going to like what they reveal.

Regards,

Brad Thomas
Editor, Wide Moat Daily