Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / Why Stagflation Is Quietly Reshaping Renters Insurance Premiums
Transcript
- Lucas: So the April core PCE reading came in at 3.3 percent annualized, right in line with expectations. The Fed's preferred gauge is sticky. And one area that doesn't get nearly enough attention in this environment is insurance — specifically renters insurance. Luna: Renters insurance? I feel like most people barely think about it until they have to file a claim. Lucas: Exactly. And that's the thing — in a stagflation environment, when wage growth is running around 4 percent but core inflation is still above 3, the small line items add up. Renters insurance premiums have been climbing at double-digit rates in many metro areas. Luna: Double digits? I've seen headlines about auto and home insurance, but renters felt like the forgotten cousin. Lucas: It is. But the dynamic is actually more interesting than you'd think. Let me give you a concrete example. There's a building in Denver — a newish multi-tenant complex built in 2021. Last year, the landlord's master policy — which covers the structure — went up 18 percent. That gets passed through to tenants via operating cost escalations. Meanwhile, individual renters policies for units in that building jumped an average of 23 percent year over year. Luna: Twenty-three percent. That's not just inflation — that's a repricing. Lucas: Right. And it's driven by three things that are all exacerbated by stagflation. First, repair and replacement costs are still elevated because of supply chain hangovers. A new roof, a new HVAC unit, even drywall — those costs haven't come down the way people expected. Luna: So the underlying cost to fix stuff is still high, and insurers are pricing that in. Lucas: Exactly. Second — climate risk. Even in non-coastal areas, severe convective storms — hail, wind, tornadoes — are becoming more frequent. Insurance models are being repriced. And third, reinsurance costs have gone up sharply. Reinsurers are demanding higher premiums because they're also facing higher payouts from climate events and inflation. Luna: So it's a cascading effect. Reinsurers charge primary insurers more, who then charge landlords more, who then pass it to renters. Lucas: Exactly. And renters are in a weird spot. Most of them don't shop around. There's data from the Insurance Information Institute showing that about 57 percent of renters have a policy, but fewer than half of those have compared quotes in the last two years. Luna: So they're getting hit with these increases without pushing back. That's a hidden tax on households that are already feeling the squeeze from higher grocery and rent costs. Lucas: It is. And it ties into the broader stagflation narrative. When growth is slow and inflation is persistent, these smaller, less elastic costs become a bigger share of household budgets. The ten-year breakeven inflation rate is at 2.39 percent — basically unchanged — which tells you the market expects inflation to stay above 2 percent for a while. Luna: And the Fed's not cutting rates anytime soon with core PCE at 3.3. So this isn't going away. Lucas: Right. The Fed's Kashkari said this week that inflation fight takes priority because the labor market is 'in decent shape.' So rates stay higher for longer, which means insurance companies' investment income is better, but their underwriting losses are also still elevated. They're playing catch-up. Luna: One thing I find interesting is how renters insurance is different from homeowners in this cycle. Homeowners have more ability to bundle or increase deductibles. Renters policies are so cheap to begin with that insurers might not bother competing aggressively. Lucas: That's a really good point. The average renters policy is maybe $15 to $20 a month. A 20 percent increase takes it to $18 to $24. That's $3 to $4 more — hardly enough to make someone switch carriers. So insurers have pricing power precisely because the product is low-stakes. Luna: And in a stagflation environment, that low-stakes product just becomes another slow drip on household finances. It's not the thing that breaks anyone's budget, but it adds to the overall feeling of being squeezed. Lucas: Exactly. And if you're someone who listens to this show and walks through the economy with us, you might have noticed something clicking about these hidden costs. I know we don't do a lot of housekeeping, but listener support is what keeps this show ad-free and independent. If you've found value in episodes like this one, consider buying us a coffee — buy me a coffee dot com slash fexingo. Seriously, it helps us keep digging into these overlooked corners. Luna: Yeah, it makes a difference. We appreciate everyone who chips in. Lucas: Now back to the thread. There's another dimension here — how insurers are tightening underwriting for multi-tenant buildings in areas with higher crime or weather risk. That's affecting the availability of coverage, which then pushes up premiums for renters who might already have thin margins. Luna: Are we seeing any regulatory pushback? Some states have rate approval processes for homeowners insurance, but renters tends to fly under the radar. Lucas: Very little. It's mostly a non-regulated line in many states. The California Department of Insurance, for instance, has been focused on homeowners and auto. Renters is just not on the radar. So insurers can raise rates with minimal scrutiny. Luna: That feels like a missed opportunity for consumer protection. But I guess in a stagflation environment, regulators are also stretched thin. Lucas: Right. And the irony is that renters are often lower-income households who can least afford even a small premium increase. According to the Census Bureau, the share of renters spending more than 30 percent of income on housing is already above 50 percent in many metro areas. Add insurance costs on top of that, and it's another squeeze. Luna: So what should a renter do? Is there any way to push back? Lucas: A few things. First, shop around annually. Even if the savings are small, they add up. Second, consider raising your deductible — the jump from $500 to $1,000 can cut the premium significantly. Third, check if your landlord's master policy covers any of your personal property. Some newer buildings include limited contents coverage. Luna: And bundle if you can. If you have auto insurance, the multi-policy discount can offset some of the increase. Lucas: Exactly. The key is not to be passive. This is one of those areas where inertia costs you real money over time. Luna: Alright, so we've covered the hidden costs. Next episode, maybe we look at something completely different — like how stagflation is affecting tuition reimbursement programs at large employers. Lucas: I like that angle. Let's save it for next time.