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DETROIT – Skyrocketing auto insurance costs helped cause inflation to accelerate at a faster-than-expected pace in March and are adding to rising costs for U.S. vehicle owners.
On a monthly basis, auto insurance prices as part of the consumer price index rose an unadjusted 2.7%, while on a year-over-year basis they increased 22.2%, according to data released Wednesday. The CPI is a key indicator of inflation and is a broad measure of the costs of goods and services across the economy.
Auto insurance costs have been on the rise for some time, growing every month as part of the CPI since December 2021. Since then, costs have increased 45.8%, according to the U.S. Bureau of Labor Statistics. However, car insurance remains a small part of the CPI, with a weight of 2.85%.
The increase comes on top of historically high prices for new and used vehicles following the coronavirus pandemic. Additionally, it has become increasingly expensive to repair vehicles due to shortages in the supply chain, wage increases for mechanics, and additional technologies in vehicles such as microprocessors, cameras, and other sensors — all of which contributes to increasing vehicle and insurance costs.
“There’s no single factor, but I think the biggest factor is a combination of newer and more expensive cars, so if you add up the car the replacement cost is really high and a fender bust is very expensive right now ,” said Sean Tucker, senior editor at vehicle rating and automotive research firm Kelley Blue Book. “Technology in cars is a very specific problem.”
Instead of having to replace a plastic or steel bumper on many vehicles, a simple bent bumper can now damage cameras, proximity sensors and several other technologies used for new safety features and tools such as cruise control, parking and braking of emergency.
“Premiums are going up because the cost of what goes into auto insurance is going up,” David Sampson, CEO and president of the American Property Casualty Insurance Association, told CNBC. “There’s a long time lag between when trends emerge and when companies see these loss trends exist. So it takes time to build that into their pricing requests.”
Earlier this year, Sampson himself had minor damage to the bumper of a 2024 pickup truck on his property that he said would cost him $1,800 to repair or replace.
“All the technology we rely on makes replacing or repairing these vehicles really, really, expensive,” said Sampson, whose organization is the leading national trade association for home, auto and business insurers.
The increases in inflation insurance costs come more than two years after the Biden administration widely blamed used car prices for pushing inflation higher in January 2022.
Mitchell, an automotive software provider specializing in the collision repair and auto insurance industries, said repair costs were increasing at an annual rate of about 3.5% to 5% before the coronavirus pandemic. coronavirus. Starting in 2022, increases were 10% or more, with an average vehicle repair estimate of $4,721 in 2023.
Both consumers and businesses are unhappy with the increases. J.D. Power in June reported that auto insurers lost an average of 12 cents on every dollar of premium collected in 2022 – their worst performance in more than 20 years – leading them to raise rates at the expense of customer satisfaction.
“What I always remind people is that insurance is based on actuarial science, so it’s not a case of insurers just deciding they want to raise premiums,” Sampson said. “Statements must be based on actuarial loss trends in their tariff applications in each state.”
The cost of vehicle insurance — which is required in nearly all states and varies by provider, driver, coverage and location. Nearly all states have minimum requirements for liability coverage, but there are a number of other coverages that may or may not be required in a specific state, according to Progressive Insurance Company.
The list of optional and mandatory coverage areas can be quite long and expensive for drivers, which has led many insurance companies to offer usage-based insurance programs that base the cost of a policy on driver behavior using telematics data.
According to J.D. Power’s June U.S. Auto Insurance Study, an insurer’s new customers have a UBI participation rate of 26%.
The study, in its 24 yearsth year, found that UBI usage more than doubled from 2016 to 2023, with 17% of auto insurance customers participating in such programs. According to J.D. Power, price satisfaction among customers participating in these programs is on average 59 points higher than that of non-participants.
Usage in such programs is expected to increase as costs rise and insurers offer discounts or special pricing for safer drivers, according to insurance companies.
Based on J.D. Power’s survey, UBI programs from Geico, Progressive, State Farm and Liberty Mutual were rated above average by customers. USAA, which provides services to all branches of the military and their families, ranked first.
The J.D. Power study also found that cost increases have led to a more than 20-year low in customer satisfaction with auto insurance companies.
“Overall customer satisfaction with auto insurers has plummeted this year, as insurers and drivers come face to face with the realities of the economy,” said Mark Garrett, director of insurance intelligence at J.D. Power, in a June statement.
– CNBC Roberto Ferris AND Jeff Cox contributed to this article
