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What does the rising price of fuel have to do with your homeowners insurance or auto insurance rates? Most of us don't have a clue, present company included.
But thumbing through the highlights of a presentation by Atlanta actuary Gail Tverberg to the Casualty Actuarial Society in a recent Insurance Journal opened my eyes to how global fuel resources are intimately connected to the price of our property and casualty insurance.
Sometimes rising prices at the pump can do good things for auto insurance rates, since less driving equals fewer accidents, as a recent study illustrates. Then again, higher fuel prices drive up the cost of auto parts and repairs, leading to larger claims that could cancel out reduced accidents.
Homeowners insurance rates are equally susceptible to fluctuations in fuel prices, as we will all doubtless find out shortly when our rates adjust – I'm predicting upward – in response to the BP oil spill, Japan's horrific nuclear catastrophe and America's violent spring weather.
The scary part of Tverberg's comments? Oil price spikes such as we've seen recently have preceded recessions in 11 out of the 12 recessions since World War Two. So waddaya do when you're already in the mother of all recessions since then?
"In terms of implications for ratemaking, we should expect more recessions, or a shift from slow growth to recession and back again, but I think the general direction is going to be in terms of more recessions," she says. "We should also expect that governments are going to be in worse financial shape, so they may not repair roads as well, they may default on their bonds, and they may not be able to fix damage after catastrophes."
Yeah, I've already scratched her from my holiday guest list.
Lest we wander too far down Cormac McCarthy's "The Road," Tverberg offers this faint ray of hope, at least for the insurance companies who employ actuaries: rising energy prices can boost demand for new insurance products to cover things like solar panels and electric cars.
That's right, according to this actuary, even if times get so bad that we're forced to drink tree sap and subsist on fiddlehead ferns, we'll still have to insure our solar panels and electric vehicles for damage and theft.
On the plus side, we may no longer need actual homeowners insurance or auto insurance as we'll all be sleeping in our golf carts by then.
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