Auto insurance rates see biggest 2-year spike since 1977
The cost of auto insurance continues to outpace most other inflationary categories, making it harder for motorists to manage their growing transportation expenses.
According to market analyst Charlie Bilello, U.S. auto insurance rates have increased by a whopping 42% over the past two years. “That’s the biggest 2-year spike since 1977,” he wrote.
By comparison, the two-year growth rate in auto premiums was less than 2% in the first quarter of 2022 before spiking in April of that year. Measured on a two-year basis, auto insurance rates have been growing at a double-digit percentage pace since August 2022.
Things have gotten progressively worse since then. As Creditnews has reported, auto insurance rates have been growing six times faster than the overall inflation rate. The gap between the Consumer Price Index (CPI) and auto premiums doesn’t seem to be narrowing, either.
For example, the U.S. CPI increased at an annual rate of 3.3% in May, but the price of auto insurance spiked by 20.3% over the same period.
As surging auto premiums continue to burn a hole in consumers’ pockets, insurers claim the decision to raise prices is out of their hands.
Insurers blame inflation, higher costs
It’s not just ordinary Americans who are feeling the brunt of rising prices. Insurance companies say the rising costs of labor and auto parts, coupled with higher car prices, have increased their expenses.
According to the Insurance Information Institute, insurers paid an average of $1.10 in claims and expenses for every dollar in premiums they collected.
Payouts have increased since Covid due to a spike in accidents and auto theft, according to data from the American Property Casualty Insurance Association and the National Insurance Crime Bureau.
2022 was an especially bad year for insurers. Unfortunately, they are “continuing to live as though it’s 2022 and price their policies that way,” said Doug Heller, insurance director at the Consumer Federation of America.
“Nobody wants to have that higher-price bill,” said Sean Kevelighan, the Insurance Information Institute’s CEO. Insurers “need to price insurance according to the risk level that’s out there.”
Nevertheless, the huge jump in insurance rates has startled even the most seasoned economists, who find it hard to believe that prices will come down anytime soon.
The surge in motor vehicle insurance “has truly been remarkable, and I don’t see any evidence of near-term relief,” said Tom Simons, U.S. economist at Jeffries.
According to comparison website Insurify, the cost of auto insurance will increase by an additional 7% in 2024.