Why car insurance costs are skyrocketing and leading to higher inflation

DETROIT
–
Skyrocketing
auto
insurance
costs
helped
contribute
to

inflation
accelerating
at
a
faster-than-expected
pace

in
March
and
are
adding
to
the
ever
more
expensive
costs
for
U.S.
vehicle
owners.

On
a
monthly
basis,
car
insurance
prices
as
part
of
the

consumer
price
index
rose
by
an
unadjusted
2.7%,
while
the
year-over-year
increased
by
22.2%,
according
to

data
released
Wednesday.
The
index
is
a
key
inflation
gauge
and
a
broad
measure
of
the
cost
of
goods
and
services
across
the
economy.

Auto
insurance
costs
have
been
on
the
rise
for
some
time,
growing
every
month
as
part
of
the
index
since

December
2021.
Since
then,
costs
have
increased
by
45.8%,
according
to
U.S.
Bureau
of
Labor
Statistics.
However,
auto
insurance
remains
a
small
portion
of
the
CPI,
with
a
2.85%
weighting.

The
uptick
comes
on
top
of
historically
high
prices
for

new
and
used
vehicles
since
the
coronavirus
pandemic.
It’s
also
become
increasingly
more
expensive
to
repair
vehicles
due
to
supply
chain
shortages,
mechanic
wage
increases
and

additional
technologies
in
vehicles
such
as
microprocessors,
cameras
and
other
sensors

—
all
of
which
contribute
to
higher
vehicle
and
insurance
costs.

“There’s
not
a
single
factor,
but
I
think
the
biggest
factor
is
a
combination
of
new
cars
and
more
expensive,
so
if
you
total
your
car
the
replacement
cost
is
really
high
and
a
fender
bender
is
very
expensive
right
now,”
said
Sean
Tucker,
senior
editor
at
vehicle
valuation
and
automotive
research
company
Kelley
Blue
Book. “The
technology
in
the
cars,
it’s
a
very
specific
problem.”

Instead
of
having
to
replace
a
plastic
or
steel
bumper
on
many
vehicles,
a
simple
fender
bender
can
now
damage
cameras,
proximity
sensors
and
varying
other
technologies
used
for
newer
safety
features
and
tools
such
as
cruise
control,
parking
and
emergency
braking.

“Premiums
have
been
on
the
rise
because
the
cost
of
what
goes
into
auto
insurance
has
been
rising,”
David
Sampson,
CEO
and
president
of
the
American
Property
Casualty Insurance
Association,
told
CNBC. “There’s
a
long
lag
time
between
when
the
trends
emerge
and
companies
see
these
loss
trends
existing.
It
then
takes
time
for
them
to
build
that
into
their
rate
application
filings.”

Earlier
this
year,
Sampson
himself
had
slight
damage
to
a
bumper
on
a
2024
pickup
truck
on
his
property
that
he
says
was
quoted
to
cost
him
$1,800
to
repair
or
replace.

“All
of
the
technology
that
we’ve
come
to
rely
on
makes
makes
the
replacement
or
repair
of
these
vehicles
really,
really,
costly,”
said
Sampson,
whose
organization
is
the
primary
national
trade
association
for
home,
auto
and
business
insurers.

The
insurance
cost
increases
on
inflation
come
more
than
two
years
after
the
Biden
administration
largely blamed
used
car
prices for
pushing
inflation
higher
in
January
2022.

Mitchell,
an

automotive
software
provider
specializing
in
collision
repair
and
auto
insurance
sectors,
said
repair
costs
were
increasing
at
an
annual
rate
of
about
3.5%
to
5%
prior
to
the
coronavirus
pandemic.
As
of
2022,
the
increases
have
been
at
10%
or
above,
with
the
average
repairable
estimate
for
a
vehicle
at
$4,721
in
2023.

Consumers
and
companies
alike
aren’t
happy
with
the
increases.
J.D.
Power
in
June

reported
auto
insurers
lost
an
average
of
12
cents
on
every
dollar
of
premium
they
collected
in
2022
—
the
worst
performance
in
more
than
20
years
—
leading
them
to
raise
rates
at
the
expense
of
customer
satisfaction.

“What
I
always
remind
folks
is
that
insurance
is
based
on
actuarial
science,
so
it’s
not
a
case
of
insurers
just
deciding
that
they
want
to
increase
premiums,”
Sampson
said. “The
filings
have
to
be
based
on
actuarial
loss
trends
in
their
rate
applications
in
each
state.”

The
cost
of
vehicle
insurance

—
which
is
mandatory
in
almost
every
state
—
varies
by
provider,
driver,
coverage
and
location.
Nearly
all
states
have
minimum
requirements
for
liability
coverage,
but
there
are
a
number
of
other
coverages
that
may
or
may
not
be
required
in
a
specific
state,
according
to
insurance
provider

Progressive.

The
list
of
optional
and
mandatory
coverage
areas
can
be
quite
long
and
expensive
for
drivers,
which
has
led
many
insurance
companies
to
offer
usage-based
insurance,
or
UBI,
programs
that
base
the
cost
of
a
policy
on
a
driver’s
behaviors
using
telematics
data.

Customers
who
are
new
to
an
insurer
have
a
UBI
participation
rate
of
26%,
according
to
the
J.D.
Power’s

U.S.
Auto
Insurance
Study
from
June.

The
study,
in
its
24^th
year,
found
UBI
usage
more
than
doubled
from
2016
to
2023,
with
17%
of
auto
insurance
customers
participating
in
such
programs.
Price
satisfaction
among
customers
participating
in
these
programs
is
59
points
higher
on
average
than
among
non-participants,
according
to
J.D.
Power.

Usage
in
such
programs
is
only
expected
to
increase
as
costs
rise
and
insurers
offer
discounts
or
special
prices
for
safer
drivers,
according
to
insurance
companies.

Based
on
J.D.
Power’s
survey,
UBI
programs
from
Geico,
Progressive,
State
Farm
and
Liberty
Mutual
were
ranked
above
average
by
customers.
USAA,
which
services
all
branches
of
the
military
and
their
families,
ranked
the
highest.

J.D.
Power’s
study
also
found
the
cost
increases
have
led
to
a
more
than
20-year
low
in
customer
satisfaction
with
auto
insurance
companies.

“Overall
customer
satisfaction
with
auto
insurers
has
plummeted
this
year,
as
insurers
and
drivers
come
face
to
face
with
the
realities
of
the
economy,”
Mark
Garrett,
director
of
insurance
intelligence
at
J.D.
Power,
said
in
a
June
release.

—
CNBC’s


Robert
Ferris

and


Jeff
Cox

contributed
to
this
article.