According to last week’s Consumer Price Index (CPI) report, automobile insurance prices have increased by more than 20% compared to the same period previous year. The CPI is the government’s technique for tracking consumer spending over time. What’s especially terrible given that premiums were already rising: CPI statistics show that altogether, vehicle insurance costs have risen by more than 38% since January 2020.
What’s happening? The major insurance firms have remained relatively silent about what is driving rising rates.
Inflation is a significant factor in the equation. Everything is now more expensive, including cars and car maintenance, and insurance firms are passing these expenses on to customers.
Industry insiders and experts I spoke with suggest there are a few under-the-radar tendencies driving prices up, which connect to the themes I cover at Vox. Let’s delve in.
One reason rates are rising is that driving became significantly more dangerous during the pandemic. People began participating in unsafe behaviors such as speeding and distracted driving.
“Since Covid, we’ve seen an incredible increase in distracted driving,” says Ryan McMahon, senior vice president of strategy at Cambridge Mobile Telematics. “You could almost track it by the day schools started to shut down.”
He’s not just speculating: CMT has access to driver data for millions of drivers who use apps provided by their insurance companies to monitor things like speeding, hard braking, and cellphone use while driving. McMahon told me that the significant increase in inattentive behaviors they observed during the pandemic has not subsided.
As the number of fatal accidents increased, so did the severity of auto insurance claims, resulting in heavily damaged vehicles that needed costly repairs.
Law enforcement may have reduced road safety enforcement due to Covid-related staff shortages and racial biases following the murder of George Floyd, despite increasing driver hazard.
Traffic enforcement is flawed and can lead to biases against Black drivers. However, it is one of the characteristics that insurance companies consider when determining individual premiums.
“Ultimately, without traffic infraction data, insurers cannot appropriately assess and underwrite a driver’s risk. According to Mark McElroy, executive vice president and head of TransUnion’s insurance business, the rising costs of accidents are causing carriers to raise prices for all customers.
Cars have also gotten more technologically advanced, resulting in higher repair costs.
Consider a car constructed in 2004 against a car made in 2024. If the two collided, the automobile from 2024 would most likely be more expensive to repair because it would contain more advanced equipment, such as backup cameras and lane sensors.
CCC reported that the average front-end claim in 2022 was $3,706, a 15% increase from the previous year. Vehicles older than seven years cost almost $1,000 less to fix.
This is clearly bad news for consumers.
New car prices have become prohibitive for middle-class buyers, disproportionately impacting low-income households. It’s especially challenging because many people rely on their cars to keep their jobs.
They are caught in a Catch-22 situation, unable to afford the escalating costs of car ownership but yet unable to live without it. Their rates are already likely to be higher if they have bad credit or live in a high-crime area. “The people least able to afford it are paying the highest amount,” claimed the industry source.
The good news, if you can call it that, is that experts do not believe interest rates will continue to rise so rapidly over the coming year.
“You had this problem where the insurance companies fell behind, so the prices didn’t match the costs and they were losing a bunch of money,” a another source told me. Insurance firms raised rates in an attempt to keep up with prices, but inflation is no longer expanding at the same rapid pace, and insurers are not experiencing the same levels of loss.
“Costs shouldn’t be as high as last year,” he added.