Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / How Home Insurance Inflation Is Getting Zillowed
Transcript
- Lucas: So the April CPI came in at 332.4, up from 330.29, and shelter inflation is still running at 4.2 percent year-over-year. But here's a number that doesn't get nearly as much airtime: home insurance premiums are up 11 percent over the last twelve months. Luna: Eleven percent. That's more than double the headline CPI. And it's not a one-off spike, either — this has been building for a couple of years now. Lucas: Right. And the thing is, when we talk about inflation, we usually focus on goods or services you buy every month — groceries, rent, gas. But insurance is this recurring cost that creeps up in ways that are easy to miss because you don't see it until renewal. Luna: And then when the renewal comes, you're looking at a 15 or 20 percent jump and wondering what happened. So what's driving this? Is it just climate disasters, or is there something structural? Lucas: It's both. On the climate side, we've had a string of costly hurricane seasons, wildfires, hail storms — the insured losses have been enormous. Reinsurers, the companies that insure the insurers, have been hiking their rates aggressively. That flows straight down to your premium. Luna: So the primary insurers are passing that cost through. But there's another layer, right? The way insurers price risk has changed. Lucas: Exactly. Insurers are now using much more granular data — satellite imagery of your roof, historical claims data for your specific zip code, even Zillow-style automated valuation models to assess replacement cost. They're not just using broad actuarial tables anymore. They're pricing each home almost individually. Luna: Which means if you live in an area that's seen more hail or fire risk, you get hit harder. And that's starting to create a feedback loop with home affordability. Lucas: Yeah, and that's the part I think is underappreciated. The Fed looks at shelter inflation through rent and owners' equivalent rent — those are in CPI. But insurance costs aren't directly factored into the shelter component. So there's this chunk of housing cost that's rising at double the rate of what the official inflation gauge is capturing. Luna: Is that distorting the Fed's view? If they're looking at CPI shelter at 4.2 percent, but actual housing costs — including insurance — are more like 6 or 7 percent for many homeowners, they might think inflation is cooler than it really is. Lucas: Potentially. But the Fed tends to focus on PCE, which has different weights. Still, the gap is real. And the other thing is, insurance inflation is sticky. It's not like gas prices that can drop next month. Once premiums go up, they tend to stay up. Luna: And there's a concentration risk. In states like Florida, California, Louisiana, premiums have surged even more. Some insurers have pulled out entirely. That leaves homeowners with fewer options and higher costs. Lucas: Right. In Florida, the average premium is now over $6,000 a year — that's up from about $2,000 five years ago. That's not just inflation; that's a structural shift in the cost of owning a home in certain regions. Luna: And that feeds into migration patterns. People might think twice about moving to a high-risk area if insurance is going to eat up a big chunk of their budget. Lucas: Absolutely. So when we talk about the cost of living, insurance is becoming a bigger piece of the puzzle. And it's not just home insurance — auto insurance has been rising fast too. But home insurance is where the structural story is most dramatic right now. Luna: Let's talk about the algorithmic pricing piece. You mentioned Zillow-style models. How exactly are insurers using data differently? Lucas: So traditionally, an insurer would look at your credit score, your claims history, maybe the age of your home. Now they're using aerial imagery to see the condition of your roof, whether there's debris that could become a projectile in a storm. They're using weather models to predict the probability of a hail event in your exact coordinates. Some are even using social media data to assess lifestyle risk. Luna: That's pretty invasive. And it also means the pricing can be very opaque. You don't really know why your premium went up — you just get a letter. Lucas: Right. And there's a regulatory dimension. Some states have pushed back on the use of credit scores or certain data points. But the trend is toward more granular pricing. The industry argues it's more accurate — you're not subsidizing risk in other areas. But the downside is that people in higher-risk areas face steep increases. Luna: So if you're a homeowner, what can you do? Any practical takeaways? Lucas: Shop around — that's the obvious one. But also, look at your deductible. If you can raise it from $1,000 to $2,500, you might see a meaningful premium reduction. And check the replacement cost estimate your insurer is using. If it's inflated because of automated models, you might be overpaying. Luna: That's a good tip. And I'd add — bundle if you can. Sometimes combining home and auto gets you a discount that offsets some of the increase. Lucas: Yeah, bundling still works in most markets. But the bigger picture is that insurance inflation is becoming a permanent feature of the cost of living, not a transitory spike. And it's one more reason why the official inflation numbers might feel disconnected from what people actually experience. Luna: If walking through the economy with us has made something click — like why your insurance bill keeps going up or how CPI doesn't capture everything — we're glad. These shows stay ad-free because of listener support. If today was useful, you can find us at buy me a coffee dot com slash fexingo. Lucas: Yeah, that really helps us keep doing this. And we appreciate it. So back to the insurance story — one thing I want to highlight is the role of reinsurance. In 2025, global reinsurance rates went up by about 10 to 15 percent, and that's after a multiyear increase. That cost gets layered into every policy. Luna: And reinsurance is global, so even if your area didn't have a disaster, you're affected by losses elsewhere. It pools risk across the whole system. Lucas: Exactly. So a hurricane in the Gulf or a wildfire in California raises costs for a homeowner in Ohio. That's the nature of the market. And with climate change increasing the frequency of severe events, that's not going away. Luna: So the inflation story here is really about risk repricing. And the Fed can't do much about it. Monetary policy doesn't lower the probability of a hailstorm. Lucas: No, it doesn't. This is structural. And it's why I think insurance deserves more attention in the inflation conversation. It's a cost that's rising for reasons that have nothing to do with demand-pull or wage pressures. It's a supply-side shock to the cost of protection. Luna: And that's going to keep pushing up the cost of homeownership, which already feels out of reach for many. So it's another headwind. Lucas: Yeah. And the next time you see a CPI print and think, 'That doesn't match my experience,' check your insurance renewal. That gap might explain a lot.