Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / Stagflation Is Reshaping the Home Insurance Market
Transcript
- Lucas: So we got the May CPI print on Wednesday — 4.2 percent annual headline inflation, highest in three years. Core inflation also ticked up. And I think there's one market where those numbers are hitting households in a way we haven't really talked about on this show: home insurance. Luna: Yeah, I've been hearing from friends in Florida and California that their premiums are going through the roof. Some are getting non-renewed entirely. Lucas: Exactly. And it's not just anecdotal. The data shows home insurance premiums nationally are up about 20 percent year-over-year as of early 2026. In catastrophe-prone states, it's closer to 30 to 40 percent. And the driving force is exactly what we're seeing in the macro numbers. Luna: Which is — inflation in building materials and labor, right? If a house burns down or gets hit by a hurricane, the cost to rebuild has gone way up. Lucas: Right. Replacement costs for lumber, roofing, drywall — they're up over 30 percent since 2020. Labor costs are up too. So insurers have to raise premiums just to keep up with the expected payout. But there's a second layer here that's less obvious: reinsurance. Luna: Reinsurance — that's insurance for insurance companies. Lucas: Exactly. Primary carriers buy reinsurance to cover the really big losses, like a hurricane that wipes out a whole county. And the price of that reinsurance has nearly doubled in the last two years, because the reinsurers are looking at the same inflation data and climate risk models. So that cost gets passed down to homeowners. Luna: And this is happening just as more people are struggling with higher rent, higher food prices, higher gas — another layer of cost on household budgets. Lucas: That's the stagflation dynamic. Wages are up modestly — average hourly earnings hit $37.50 in May, up about 3.5 percent year-over-year — but insurance premiums are rising much faster. So real purchasing power for housing is getting squeezed. Luna: And in some states, it's not just about price — it's about availability. I read that in California, the state's FAIR Plan — the insurer of last resort — has seen enrollment surge 40 percent in the past year, because private insurers are pulling out of high-fire-risk areas. Lucas: Right. And the FAIR Plan is more expensive and offers less coverage. So you've got a situation where homeowners are paying more for less protection. That feeds into housing market dynamics too — if you can't get affordable insurance, you might not be able to get a mortgage, or you might decide not to buy in that area. Luna: So we're seeing stagflation ripple into the housing market through an unexpected channel. Lucas: Which brings up a broader point we keep coming back to on this show: stagflation doesn't just show up in GDP and CPI numbers. It shows up in the mundane stuff — your insurance renewal, your grocery bill, your rent. And the insurance industry is a really good lens because it has to price risk based on current conditions, not lagging indicators. Luna: And that pricing is getting passed through fast. I've seen data that some carriers are filing for rate increases of 20 to 30 percent in a single year, and regulators in some states are actually approving them because the actuarial data supports it. Lucas: Which creates a political problem. State insurance commissioners are elected in many states. They don't want to approve huge rate hikes. But if they don't, insurers leave the market, and you get an availability crisis. That's the tension playing out in California, Florida, Louisiana, Colorado. Luna: And we've also got climate change layering on top of inflation. The same storms that cause physical damage also increase the cost of capital for insurers. It's a compounding effect. Lucas: Exactly. And there's an interesting response emerging: parametric insurance. Instead of indemnifying actual losses, you get a fixed payout when a specific trigger happens — like a wind speed threshold or an earthquake magnitude. That cuts out a lot of the claims adjustment costs, which have also been rising. Luna: Parametric policies are still niche, but I've seen them growing in commercial real estate and agriculture. For homeowners, they're mostly available through specialized brokers or as add-ons. Lucas: I think we'll see more of that, especially if traditional insurers keep retreating from high-risk areas. But for now, the main story is that stagflation is making home insurance a significant household expense, and it's not going away anytime soon. Luna: And that matters for the broader economy because housing is the largest asset for most families. If the cost of protecting that asset goes up sharply, it can affect everything from consumer confidence to migration patterns. Lucas: Right. We've talked on this show about how stagflation reshapes everything from the used car market to the restaurant industry. Home insurance is one more piece of that puzzle, and it's one that hits people's mailboxes every six months or every year — very visible, very concrete. Luna: It's a reminder that inflation isn't just a statistic. It's the actual price you pay to keep a roof over your head. Lucas: And that's exactly why we dig into these angles on this show — because the macro numbers only tell part of the story. We keep the show free and ad-free because we think this kind of conversation should be accessible to anyone who wants to understand how the economy actually works. If that's been valuable to you, there's a simple way to support us: buy me a coffee dot com slash fexingo. Luna: Yeah, no ads, no sponsors, just the analysis. That's the model we believe in. And listener support really does make a difference. Lucas: So back to the data — we mentioned the CPI print. Let's tie it specifically to insurance pricing. The core CPI, which excludes food and energy, rose 0.3 percent month-over-month in May. That's still elevated. And within the CPI, one component that often gets overlooked is 'owners' equivalent rent' — that's the imputed cost of owning a home. But actual insurance costs aren't captured perfectly in the CPI. The Bureau of Labor Statistics tracks 'tenants' and 'household' insurance in a separate category, and that's been rising at double-digit rates. Luna: So the official inflation numbers might actually understate the burden on homeowners, because they don't fully capture these insurance spikes. Lucas: Exactly. And that's a theme we see across stagflation — the official averages smooth out a lot of pain that's concentrated in specific categories. Insurance, rent, food — those are the categories that hit households hardest, and they're all running hot. Luna: So what would you tell someone listening who's about to get their renewal notice? Any practical takeaways? Lucas: First, shop around every year. Loyalty doesn't pay in this market. Second, consider raising your deductible if you can absorb a larger out-of-pocket cost — that can lower premiums significantly. Third, look into bundling with auto if you haven't. And if you're in a high-risk area, start researching the FAIR Plan or surplus lines carriers now, before you get a non-renewal notice. Luna: And maybe consider whether parametric insurance might be an option for part of your coverage. Lucas: Right. The market is changing fast. The old rules of thumb — like 'insurance premiums rise with inflation at about 5 percent per year' — those are outdated. We're in a new regime, and it pays to be proactive. Luna: It's another example of how stagflation forces everyone to become a more active consumer — you can't just set and forget. Lucas: And that's a theme we'll keep coming back to. Next episode, we're going to look at how this same dynamic is playing out in health insurance, which is another area where costs are accelerating faster than the overall CPI. But for now, the takeaway is: home insurance is a stagflation hot spot, and it's worth watching closely.