[Updated 2022] What Is Inflation Guard & Have There Been Recent Developments?

In 2021, we saw a unique economic environment. Supply chains were affected dramatically and a few industries experienced weather-related setbacks. This, along with the new challenge of a labor shortage, was not allowing supply to keep up with demand — which inevitably leads to inflation.

One of the ways the insurance industry mitigates the negative effects of inflation is through what’s commonly referred to as inflation guard.

What Is Inflation Guard?

Inflation Guard is the automatic annual increase in property values on an insurance policy to help keep up with rising costs of construction. It can provide carriers with more adequate premiums to pay for covered losses and provides policyholders with protection against coinsurance penalties if a coinsurance requirement exists. Many insurance carriers apply an annual 4% Inflation Guard increase. 

While this is an important factor to maintaining adequate values on an insurance policy, if values don’t keep up with the pace of higher levels of inflation, insurance premiums may still have to take an increase.

What Is Coinsurance?

Coinsurance language in a policy gives an insurance company the right to reduce the amount of a claim payment if the amount of insurance purchased was inadequate.

What Does This Mean for Policyholders & Insurance Agents? 

Policyholders could be underinsured at the time of total loss and find themselves with significant out-of-pocket costs in order to return to normal operations. If a partial loss occurs and the carrier imposes a coinsurance or underinsured penalty, the policyholder would also experience out-of-pocket costs. If the above occurs, there may be errors and omissions lawsuits against the insurance agent.

Recent Developments in Commercial Insurance Rates

Some policyholders may have noticed that the cost of insurance has increased across the board. This is, in some part, explained by rapid inflation. In fact, in March 2022, the Consumer Price Index (CPI) jumped by 8.5% — the fastest pace since the 1980s. 

Another cause of price hikes in recent years is legal system abuse, otherwise referred to as “social inflation.” Because litigation abuse has been rising and driving insurance losses and costs, it has increased premiums for policyholders.

The impact this has on small businesses is indeed measurable. A recent survey from the Council of Insurance Agents and Brokers (CIAB) found that in the fourth quarter of 2021, medium-sized businesses experienced an average increase in insurance premiums of 10.6 percent, and small businesses faced an average increase of 6.3 percent.

Does Society Insurance Include Inflation Guard in Policies?

Society Insurance does include Inflation Guard and does not include coinsurance or underinsured penalties in their policies. This provides protection for both policyholders and agents from some of the challenges in managing property values. Maintaining adequate values on insurance policies is critical. Inflation Guard can help fend off trouble. However, the importance of annual conversations between insurance agents and policyholders should not be overlooked, to address specific changes in the market, industry and economy.

To learn more about this important coverage and other Small Details that make a Big Difference, contact your local Society Insurance agent.

Additional Resources


As a mutual insurance company, we operate and exist for the benefit of our policyholders. For more than 100 years, Society has been helping businesses overcome the unexpected with comprehensive coverage packages and outstanding claims handling, underwriting and risk management.

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