Recent data from the Bureau of Labor Statistics (BLS) reveals a staggering 19% surge in car insurance costs within just one year, significantly surpassing the overall inflation rate of 3%. This drastic increase stands out amidst an otherwise cooling inflation trend and has become the highest among various spending categories tracked by the BLS in November.
Despite a mere 1.3% growth in the cost of new cars since last year and a decrease in the cost of used cars and trucks, car insurance expenses have exhibited a consistent trend of outpacing overall inflation over the past decade. CheapInsurance.com delved into the reasons behind this surge, comparing historical inflation with the rising cost of car insurance based on BLS data.
The primary contributors to the ongoing escalation in car insurance costs are faster increases in vehicle repairs, medical care, and, to some extent, legal expenses – all of which directly impact insurance agencies’ overheads. Additionally, the heightened ownership and use of cars have resulted in more congested roads, leading to an increase in accidents. Distractions while driving, amplified by technological advancements, have further contributed to costly crashes that insurance providers must cover.
Risky driving behaviors, expensive repairs, and severe weather events play pivotal roles in the recent spike in car insurance premiums. Although traffic fatalities have decreased from 2021 highs, they remain elevated compared to pre-pandemic levels, as reported by the Department of Transportation. Sean Kevelighan, CEO of the Insurance Information Institute, noted that risky habits picked up during the pandemic persist, despite the return of denser vehicle traffic.
The surge in accidents has created a higher demand for services, coupled with increased labor costs, mechanic shortages, complex repairs in tech-enabled cars, and ongoing supply chain challenges. Consequently, the cost of car repairs has seen an annual increase of 8.5% as of November. Insurers, often covering these costs, have adjusted their prices accordingly.
Natural disasters, including hurricanes and floods, are additional factors contributing to rising insurance costs. The impacts of climate change, leading to more frequent and severe weather events, have compelled insurance companies to handle an increased number of claims. Losses from catastrophes in the first half of 2023 marked the highest in over two decades, according to the Insurance Information Institute. Regions more susceptible to extreme weather, like Florida, are particularly affected as insurance companies either raise rates further or withdraw from the market altogether.
Notably, U.S. personal auto insurers are currently operating at an underwriting loss, where customer premiums do not fully cover the costs insurers pay out in claims annually. Industry experts, including III executive Dale Porfilio, predict that the sector may not return to profitability until 2025, signaling potential ongoing increases in insurance costs for drivers.
