Why car insurance costs are skyrocketing, leading to higher inflation

DETROIT – Soaring auto insurance costs caused inflation to accelerate faster than expected in March, making it increasingly expensive for American car owners.

According to statistics, auto insurance prices, which are part of the Consumer Price Index, rose 2.6% from last month and 22.2% from the same period last year. Data released on Wednesday. The CPI index is an important indicator of inflation and a broad measure of the cost of goods and services throughout the economy.

Car insurance costs have been rising for some time, and have risen every month since as a share of the CPI. December 2021. Since then, costs have increased 45.8%, according to the U.S. Bureau of Labor Statistics. However, auto insurance still accounts for a small proportion of the CPI, with a weight of 2.85%.

Prices have risen since the coronavirus pandemic hit record highs for both new and used cars.Repairing vehicles is also becoming more expensive due to supply chain shortages, rising mechanic wages and additional technology such as microprocessors, cameras and other sensors in vehicles — All of this leads to higher vehicle and insurance costs.

“It’s not a single factor, but I think the biggest factor is a combination of new cars and more expensive cars, so if you add up your cars, replacement costs are really high, and fender benders are very expensive right now,” Shaw said said N. Tucker, senior editor at vehicle evaluation and automotive research company Kelley Blue Book. “Automotive technology is a very specific problem.”

Instead of replacing plastic or steel bumpers on many vehicles, a simple fender bender can now damage cameras, proximity sensors and newer safety features and tools such as cruise control, parking and emergency braking. various other technologies.

“Premiums have been going up because the cost of auto insurance has been going up,” David Sampson, CEO and president of the American Property Casualty Insurance Association, told CNBC. “From the time the trend emerges to the time companies discover these loss trends exist There’s a long lag time in between. And then they need time to get it into the rate application document.”

Sampson himself had minor damage to the bumper of a 2024 pickup truck on his property earlier this year, which he said would cost $1,800 to repair or replace.

“All the technology we rely on makes these vehicles very, very expensive to replace or repair,” said Sampson, whose organization is the major national trade association for home, auto and commercial insurance companies.

More than two years ago, the Biden administration in January 2022 primarily blamed used car prices for driving up inflation.

mitchell, a Automotive software supplier Companies that specialize in collision repair and auto insurance say repair costs were growing at about 3.5% to 5% annually before the coronavirus pandemic. By 2022, the increase has reached 10% or more, and the average repairable cost of a vehicle in 2023 is expected to be $4,721.

Consumers and companies alike are unhappy with the price increases. JD Power June report Auto insurance companies lost an average of 12 cents for every $1 in premiums collected in 2022, their worst performance in more than 20 years, leading them to raise rates at the expense of customer satisfaction.

“I always remind people that insurance is based on actuarial science, so this is not a situation where the insurance company decides to raise premiums,” Sampson said. “These documents must be based on the actuarial losses for each state rate application trend.”

vehicle insurance cost — This is mandatory in nearly every state — and varies by provider, driver, coverage and location.Insurers say nearly all states have minimum requirements for liability insurance, but certain states may or may not require some other coverage progress.

The list of optional and mandatory coverage areas can be quite long and expensive for drivers, leading many insurance companies to offer usage-based insurance plans that use telematics data to base policy costs on driver behavior.

According to JD Power, the UBI participation rate for new insurance customers is 26% U.S. Auto Insurance Research Starting in June.

The study, in its 24^th This year, UBI usage has more than doubled from 2016 to 2023, with 17% of auto insurance customers participating in such programs. According to JD Power, price satisfaction among customers who participate in these programs is, on average, 59 percentage points higher than among customers who do not participate.

The use of such programs is only expected to increase as costs rise and insurance companies offer discounts or specials for safer drivers, according to insurance companies.

UBI plans from Geico, Progressive, State Farm and Liberty Mutual rank above average among customers, according to JD Power’s survey. USAA serves all military members and their families and is ranked highest.

JD Power’s research also found that rising costs have caused customer satisfaction with auto insurance companies to drop to its lowest level in more than 20 years.

“Overall customer satisfaction with auto insurance companies has declined significantly this year as insurers and drivers face economic realities,” Mark Garrett, director of insurance intelligence at JD Power, said in a June press release.

—CNBC Robert Ferris and Jeff Cox contributed to this article.