Inflation accelerated quicker than projected in March due to rising auto insurance premiums, further exacerbating the already high costs for vehicle owners in the United States.
Car insurance premiums in the consumer price index grew by 2.7% monthly and 22.2% year-over-year, according to statistics released on Wednesday. The index is an important inflation indicator and a broad measure of the cost of goods and services throughout the economy.
Auto insurance rates have been steadily increasing since December 2021, contributing to the overall index. Costs have risen by 45.8% since then, according to the United States Bureau of Labor Statistics. However, auto insurance continues to account for a modest percentage of the CPI, with a weighted of 2.85%.
Since the coronavirus outbreak, new and used automobile costs have reached historically high levels. car maintenance prices have risen due to supply chain bottlenecks, increased mechanic wages, and new technology like microprocessors, cameras, and sensors. These factors contribute to higher car 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 Kelley Blue Book, a vehicle valuation and automotive research company. “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 collision can now damage cameras, proximity sensors, and a variety of other technologies required for newer safety systems and tools like cruise control, parking, and emergency braking.
“Premiums have been on the rise because the cost of what goes into auto insurance has been rising,” said David Sampson, CEO and president of the American Property Casualty Insurance Association, to CNBC. “There is a significant lag period between when trends begin and when firms notice these loss trends exist. It takes time for them to incorporate this into their rate application filings.”
Earlier this year, Sampson had minor damage to a bumper of his 2024 pickup truck, which he claims would cost $1,800 to fix or replace.
“All of the technology that we’ve come to rely on makes the replacement or repair of these vehicles really, really, costly,” said Sampson, whose organization is the leading national trade association for home, auto, and business insurers.
In January 2022, the Biden administration blamed used car prices for rising inflation, but now insurance costs are also contributing to inflation.
Prior to the coronavirus pandemic, Mitchell, an automobile software company specializing in accident repair and auto insurance, reported an annual cost increase of 3.5% to 5%. As of 2022, the increases have been 10% or higher, with the average repairable estimate for a car reaching $4,721 in 2023.
Consumers and businesses alike are unhappy with the increases. In June, J.D. Power stated that auto insurers lost an average of 12 cents for dollar of premium collected in 2022, the poorest performance in over 20 years. This led to rate increases at the price of consumer happiness.
“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,” he said. “The filings have to be based on actuarial loss trends in their rate applications in each state.”
Vehicle insurance costs vary depending on provider, driver, coverage, and region, despite being obligatory in almost all states. Progressive, an insurance company, notes that while liability coverage is needed in almost all jurisdictions, other coverages may vary by state.
The list of optional and essential coverage categories can be lengthy and costly for drivers, prompting many insurance firms to offer usage-based insurance, or UBI, programs that base policy costs on a driver’s telematics data.