Soaring auto insurance costs are contributing significantly to stubbornly high inflation, adding to the ever-increasing financial burden on U.S. vehicle owners.
The latest consumer price index data, a key measure of economy-wide inflation, showed car insurance prices jumped 2.6% month-over-month in March and a staggering 22.2% compared to a year ago.
“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,” explained Sean Tucker, senior editor at Kelley Blue Book. “The technology in the cars, it’s a very specific problem.”
Auto insurance rates in the US increased by 22% over the past year. That's the biggest 1-year spike since 1976.
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— Charlie Bilello (@charliebilello) April 10, 2024
Indeed, vehicle repair costs have skyrocketed due to supply chain disruptions, wage pressures for mechanics, and the proliferation of advanced sensors and microprocessors in modern vehicles.
What used to be a simple bumper replacement after a fender bender now often involves pricey cameras, proximity sensors and other high-tech components.
However, inflation alone does not fully explain the dramatic auto insurance premium hikes.
Another major factor is the alarming surge in vehicle thefts, particularly in cities with progressive district attorneys who have taken a lenient stance on crime. Insurers are grappling with escalating losses from stolen vehicles on top of higher repair and replacement costs.
RELATED: 14,000 Cars Abandoned in Oakland In Just Six Months Because of Massive Theft Issue
Faced with these realities, auto insurers lost an average of 12 cents on every dollar of premium collected in 2022 according to J.D. Power – their worst financial performance in over two decades.
APOLLO: “.. The 3-month annualized change in supercore inflation is now over 8% and accelerating .. the Fed is not done fighting inflation and rates will stay higher for longer. .. We are sticking to our view that the Fed will not cut rates in 2024.” [Slok] #CPI pic.twitter.com/RsZmAyoQP9
— Carl Quintanilla (@carlquintanilla) April 10, 2024
In response, companies are aggressively raising rates, much to the chagrin of increasingly dissatisfied customers.
Usage-based insurance (UBI) programs, which price policies based on driving behavior, are seeing rapid adoption amidst the rate pressure.
J.D. Power found 17% of auto insurance customers now participate in UBI, more than double the rate from 2016. Price satisfaction is notably higher among UBI participants.
