Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Home Insurance Costs
Transcript
- Lucas: I want to talk about home insurance today, Luna. And I know — not the sexiest topic. But here's why it matters. Luna: Because it's been eating people alive for the last few years, right? I've got friends in Florida and California who've seen their premiums double. Lucas: Exactly. Nationally, home insurance premiums rose something like 34 percent between 2020 and 2024. In high-risk states, it was worse — some homeowners saw 100 percent increases or more. But here's the thing: that trend is finally bending. Luna: Wait — bending? Because the headlines I'm still seeing are about insurers pulling out of California and Florida. Lucas: That's true, and those retrenchments are real. But if you look at the national averages for 2025 and into 2026, premium growth has slowed to around 5 to 6 percent annually. Meanwhile, average hourly earnings — last reported in May at $37.50 — are growing at about 4.6 percent year-over-year. So the gap is much smaller than it was two years ago, and in some months, wage growth is actually outpacing home insurance inflation. Luna: So for the average worker, their raise is finally keeping up with or beating the home insurance hike. That's a meaningful shift. Lucas: It is. And the reason is structural, not just a blip. For the first time in years, we're seeing a normalization in the reinsurance market — that's the insurance that insurers buy to cover their own catastrophic losses. Luna: Right, because after a few bad wildfire and hurricane seasons, reinsurance rates spiked, and that got passed down to homeowners. Lucas: Exactly. But in 2025 and early 2026, global reinsurance capital has been replenished. Investment returns have been solid, and new capacity has entered the market — including from pension funds and hedge funds looking for uncorrelated returns via insurance-linked securities. Luna: So the cost of reinsurance is coming down, which means primary insurers aren't under as much pressure to jack up premiums. Lucas: And simultaneously, state regulators have gotten more aggressive. California's insurance commissioner, for example, pushed through new rules in 2025 requiring insurers to factor in wildfire mitigation — things like defensible space and fire-resistant roofing — when setting rates. That means homeowners who invest in mitigation actually see slower premium growth. Luna: That's a carrot and stick approach. But what about the fact that we're heading into summer 2026 and wildfire season is already looking active? Doesn't that put the trend at risk? Lucas: It's a real risk, no question. And if we see another catastrophic year — like 2020-level wildfire losses — reinsurance rates could spike again. But the market has been repricing risk much more granularly now. Insurers are using better climate modeling to price individual properties rather than just blanket-zoning entire counties. So even if total losses are high, the premium impact might be more targeted. Luna: So the takeaway for the average listener might be: your raise is finally giving you some breathing room on home insurance — but don't count on it lasting forever if you live in a high-risk area. Lucas: That's the smart framing. And we've got data to back up the good news for now. The core PCE price index — the Fed's preferred inflation measure — was at 129.6 in April, up just 0.3 percent from March. That's below wage growth. And while the CPI overall is still running a bit hot at 334.0, the shelter component, which includes homeowners' equivalent rent, has been decelerating. That's the biggest piece of most people's cost of living. Luna: So housing costs broadly are becoming less of a drag on purchasing power. And home insurance is part of that story. Lucas: Right. And I think one underappreciated factor is that the labor market itself is helping. With the unemployment rate low and nominal wages rising, people have more income to absorb these costs. But the real win is when wage growth exceeds specific cost categories — and that's finally happening for home insurance. Luna: Let me ask a practical question. For someone listening who's seen their home insurance go up 50 percent over three years — should they expect that to stop? Lucas: For most people, yes, the pace of increases should moderate. But I'd recommend shopping around every year. Loyalty doesn't pay in insurance. Some carriers are offering better rates to attract new business, especially in states where they've been underwriting more selectively. And if you've made improvements to your home — new roof, updated electrical — make sure your insurer knows, because that can lower your premium under the newer risk-based models. Luna: That's solid advice. And it's nice to have a cost of living story that isn't just 'everything is getting more expensive forever.' Lucas: Yeah, I mean, if you've been listening to this show for 70 episodes, you know we've covered a lot of categories where wages are finally catching up — groceries, car insurance, streaming subscriptions. Home insurance is another one to add to the list. Luna: And if walking through the economy with us has made something click for you — maybe helped you feel a little more in control of your own finances — there's a small way you can keep the show going ad-free. A couple of dollars a month genuinely makes a difference. It's at buy me a coffee dot com slash fexingo. Lucas: Yeah, and it's not a big ask. If you've gotten value from these episodes, that's the place. And we'll keep bringing you the data. Luna: So back to home insurance — do you think this trend holds through the end of the year? Lucas: I think it depends on hurricane season and wildfire activity. If we get through the next few months without a major catastrophe, the repricing we've seen should hold. The reinsurance market is in a much healthier place than it was in 2023. And wage growth, while slowing, is still above 4 percent. So the structural conditions are there for this to continue. Luna: But one bad season could change the math. Lucas: Exactly. And that's the tension in all of these wage beating inflation stories. The progress is real, but it's fragile. The good news is that for right now, mid-2026, the average worker's raise is keeping pace with home insurance costs. That's a win worth noting. Luna: Alright, we'll keep watching the data. Thanks, Lucas. Lucas: Thanks, Luna. And thanks to everyone listening.