NU Online News Service, Feb.1, 3:53 p.m. EST
The annual consumer price index may have dropped 0.4 in 2009, but the costs of health care and legal services that impact insurers rose anywhere from 3 percent to 6 percent, said Insurance Information Institute.
Steven Weisbart, I.I.I. chief economist, noted that "auto and workers' compensation insurers are sensitive to hospital, physician and legal service fee increases, and every single one of those items cost more in 2009 than they did in 2008."
He called those figures "notable in a year when the overall CPI actually decreased, something which hadn't happened in the United States since 1955."
Hospital service prices increased 6.4 percent in 2009, according to the federal government's year-end CPI report, while the fees for physicians' services and legal services also moved upward, by 3 percent and 2.7 percent, respectively.
I.I.I. said looking closer it found the cost of a new car increased only 0.9 percent in 2009, compared to 2008, but over this same time frame auto body repair shop prices grew by 3.2 percent.
Charges for doctors' and dentists' services are calculated as part of the overall CPI index but do not carry the weight of food, clothing, housing, energy and transportation prices. The CPI is also commonly considered as the benchmark for the inflation rate.
"Our roadways and workplaces are safer today than they've ever been," Mr. Weisbart continued. "But just because claim frequency is down doesn't mean these claims cost insurers less money."
He said 2009 CPI data shows that health care and legal costs ran well ahead of the overall inflation rate, and "these two sectors are major cost drivers for most personal and some commercial insurance coverages."
In addition to writing auto and commercial insurance, p&c insurers provide coverage to homeowners, who all too often seek to lower their insurance coverage as real estate market prices fall, I.I.I. said.
"Although construction material costs in 2009 were generally flat, they didn't drop as home prices did, and it would be short-sighted for a homeowner to lower his or her policy coverage limits," Mr. Weisbart concluded. "The key criterion when insuring a home is assessing its reconstruction cost in the event of a total loss, not what the house would sell for if it were put on the market today."
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