Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / Why Stagflation Is Reshaping the Property Insurance Industry
Transcript
- Lucas: If you own a home — or rent one — and you've opened your renewal notice lately, you've probably seen a number that makes you blink twice. Property insurance premiums are up something like 20 percent nationally over the past two years. In states like Florida and California, it's worse. Luna: And this is where the stagflation frame really bites. It's not just inflation driving up replacement costs — it's that slow growth means insurers can't easily pass those costs along to a booming customer base. Lucas: Exactly. So let's anchor this in the actual data. The CPI — that's the consumer price index — came in at 334 for May 2026, up from 332.41 the month before. That's about a 2.4 percent annualized increase. For property insurance, that means the cost of labor and materials to rebuild a house is still climbing. Luna: And that's only part of the story. On the growth side, real GDP is growing at an annualized rate of 2.1 percent, according to the latest Q1 figure. That's not a recession, but it's not exactly robust either. So insurers are stuck between higher claim costs and a sluggish economy. Lucas: Right. And that's why we're seeing a wave of carriers pulling out of states where regulators won't let them raise rates enough to cover risk. In Florida, for instance, several insurers have gone insolvent or simply stopped writing new policies. The state's insurer of last resort, Citizens, now has over a million policies — that's more than any private carrier. Luna: I've seen that. And it's not just hurricane risk. California has wildfire risk combined with Proposition 103, which caps rate increases. So some of the biggest names in insurance — State Farm, Allstate — have stopped writing new homeowners policies there. Lucas: And this is where the stagflation dynamic is really specific. Normally, in a high-inflation environment, insurers can invest premiums at higher interest rates and offset underwriting losses. The ten-year Treasury is yielding around 4 percent these days, which helps. But the slow growth means demand for insurance isn't expanding fast enough to make up for the losses. Luna: So the math doesn't work. And that's why reinsurance rates — the insurance that insurance companies buy — have doubled in some cases. That cost gets passed down to you and me. Lucas: Let me give you a concrete example. The average homeowners premium in Florida was about $6,000 a year in 2024. It's probably closer to $7,200 now. In California, if you can get a policy, you're looking at maybe $2,500, up from $1,800 a few years ago. And that's if you're not in a high-risk zone. Luna: I want to pause on that — because if you're a renter, you might think this doesn't affect you. But landlords pass those costs through in rent. And commercial property owners do the same for retail and office space. So it's pervasive. Lucas: Absolutely. And the labor market data adds another wrinkle. The unemployment rate is 4.2 percent, which is low historically, but job creation is slowing — just 57,000 nonfarm payrolls added in June. That means fewer people are moving, buying new homes, or starting businesses that need commercial coverage. The pie is growing slowly. Luna: So premiums are rising faster than incomes for most people. That's a recipe for underinsurance — people dropping coverage or reducing limits to save money. Lucas: And that's a real risk. If you're underinsured and a disaster hits, you could be wiped out. So the question becomes: what can homeowners and renters do? Luna: Well, if you're in a state where the market is still competitive, shop around every year. Loyalty doesn't pay anymore. But if you're in Florida or California, your options are limited. Lucas: One thing that might help is raising your deductible. Moving from a $1,000 to a $2,500 deductible can lower your premium by 15 to 20 percent. You're self-insuring the smaller stuff, but you keep coverage for the catastrophic loss. Luna: And for renters, renters insurance is still cheap — maybe $15 a month. Don't skip it. Your landlord's policy doesn't cover your stuff. Lucas: Yeah, that's key. And look, if walking through the economy with us has made something click, a couple of dollars a month is genuinely what keeps these shows going — buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: It really does make a difference. Every bit helps us keep the lights on and the analysis free for everyone. Lucas: So back to the insurance squeeze — there's a regulatory angle too. Some states are trying to address the availability crisis. Florida passed reforms in 2023 to reduce litigation and fraud, which helped stabilize the market a bit. But rates are still going up because the underlying risk is higher. Luna: And climate change is the wildcard. More frequent and severe storms, bigger wildfires — the models insurers use are getting rewritten. Some carriers are saying the 30-year outlook is too uncertain to price. Lucas: That's why we're seeing the federal government get involved. The National Flood Insurance Program is already deeply in debt. There's talk of a federal backstop for catastrophic risk, similar to terrorism insurance after 9/11. But that's politically tricky. Luna: In the meantime, the burden falls on homeowners. And if you're in a high-risk area, your premium might be $10,000 or more a year. That's a mortgage payment for some people. Lucas: And that feeds back into the housing market. If insurance costs make homeownership unaffordable, demand drops, prices soften — and that's another stagflation signal: falling asset values with rising costs of living. Luna: So the insurance crisis is not just an insurance problem. It's a housing problem, a wealth problem, and a macroeconomic problem all wrapped into one. Lucas: Right. And I think the key takeaway for listeners is: if you have a policy renewal coming up, don't just auto-pay. Look at the numbers. See if you can bundle auto and home for a discount. Ask about wind mitigation discounts if you're in a hurricane zone. And if you're shopping for a home, factor in the insurance cost — it could be thousands of dollars a year that you might not have budgeted for. Luna: And if you can't get private coverage at all, check your state's FAIR plan — it's a last resort, but it's better than nothing. Just know it's usually more expensive and offers less coverage. Lucas: One more thing — the job market data we mentioned earlier: the labor force participation rate fell to its lowest in 50 years, outside of the pandemic. That means fewer people are working or looking for work. That puts upward pressure on wages, which feeds into construction costs, which feeds into insurance costs. It's all connected. Luna: So the stagflation loop is real: inflation pushes costs up, slow growth limits income growth, and the insurance market is one of the clearest places to see it play out. Lucas: Next episode, we'll look at another sector being reshaped by these same forces. But for now, check your renewal notice — and maybe lock in that rate for another year if you can. Luna: Good advice. Thanks, Lucas. Lucas: Thanks, Luna. See you next time.