The rising cost of auto insurance is contributing to accelerated inflation in the U.S. The consumer price index for car insurance rose by 2.7% on a monthly basis and 22.2% year-over-year in March. Since December 2021, auto insurance costs have increased by 45.8%. However, auto insurance only accounts for a small portion of the CPI, with a weighting of 2.85%.
The costs of new and used vehicles have also been historically high since the pandemic, making it more expensive for vehicle owners to repair their cars. This is due to supply chain shortages, increases in mechanic wages, and the incorporation of additional technologies such as microprocessors, cameras, and sensors in vehicles. The replacement or repair of vehicles have become very costly due to the advanced technology present in modern vehicles.
The CEO of the American Property Casualty Insurance Association, David Sampson, highlights that insurance costs have been rising because the overall cost of auto insurance has been on the rise. The increasing trend of costly repairs and replacement parts in newer vehicles with advanced technology has led to higher premiums. Sampson notes that there is a significant lag time between the emergence of these trends and when companies adjust their rates accordingly.
The Biden administration had previously blamed used car prices for pushing inflation higher in January 2022. Since then, auto insurance costs have continued to rise, and repair costs have been increasing at an annual rate of 10% or more. The average repairable estimate for a vehicle in 2023 is $4,721. J.D. Power reported that auto insurance companies lost an average of 12 cents on every dollar of premium collected in 2022, leading to rate increases but decreased customer satisfaction.
Many insurance companies are now offering usage-based insurance (UBI) programs that base the cost of a policy on a driver’s behaviors using telematics data. These programs have gained popularity, with 17% of auto insurance customers now participating in UBI programs. Customer satisfaction with auto insurance companies has plummeted recently, with costs continuing to rise. Popular UBI programs are being offered by Geico, Progressive, State Farm, and Liberty Mutual, with USAA ranking the highest in customer satisfaction.
Overall, the increase in auto insurance costs is affecting both drivers and insurance companies, with repair costs also on the rise. The incorporation of advanced technology in vehicles has made repairs more expensive, contributing to the higher costs of auto insurance. Customers are increasingly turning to usage-based insurance programs to monitor their driving behaviors and potentially lower their premiums. Despite the challenges, insurance companies are working to adjust their rates based on actuarial loss trends to ensure the financial stability of their organizations.
