Car Insurance Costs Are Skyrocketing, Biggest One Year Spike Since 1976

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.”

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.

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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.

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.