Insurance Inflation Index: Car insurance rates rise

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Auto insurance prices increased 0.4% in December, according to U.S. Bureau of Labor Statistics data released January 15, which followed a modest rise — 0.1% — in November.

In the last two years, auto insurance costs have jumped almost 35%, according to BLS’s tracking of urban consumers’ spending.

With the exception of a rare dip in rates in October (down 0.1%), auto insurance prices have risen steadily since June, according to the BLS’s Consumer Price Index (CPI).

However, the year-over-year numbers show car insurance inflation is slowing. While the December numbers show an 11.3% year-over-year increase, the November numbers showed car insurance up 12.7% year-over-year and the October numbers had motor vehicle insurance up 14% year-over-year. That’s down from a 20% year-over-year increase the Labor Department reported in May.

Still, consumers — stirred by rising premiums over the last couple of years — are increasingly looking for cheaper rates, according to LexisNexis Risk Solutions.  The data and analytics company said on November 20 that almost half (45%) of all policyholders shopped at least once in the last 12 months for a new policy.

As consumers seek out cheaper insurance, however, it’s important to note that individual rates depend on many factors, including a person’s age, driving history, the car they drive, their coverage levels and where they live. For instance, average car insurance prices can range from $2,883 a year in Louisiana to $1,175 in Maine, according to the most recent analysis by Insure.com.

In other insurance segments:

• Prices for tenants’ and household insurance — which most people call renters insurance — were flat in December for the second straight month.
• Health insurance prices were also flat month-over-month. However, prices were up 0.2% in November, which followed a 0.5% increase in October, a 0.4% increase in September and a 0.1% increase in August.

The BLS doesn’t track homeowners and life insurance. 

For December the overall CPI, a measure of the cost of U.S. goods and services, rose 0.4%, which followed a 0.3% increase the month before. The index is up 2.9% for the last 12 months.

Long-term auto insurance inflation trends

Experts believe auto insurance inflation will continue to slow.

Scott Shapiro, the insurance sector leader at KPMG,  the audit, tax and advisory firm, notes that over the last couple of years we’ve been dealing with inflation, supply-chain issues and insurance increases that rose with the frequency and severity of accidents after the Covid-19 pandemic faded.

Today, those physical damage repair costs have abated. The most pronounced softening, Shapiro says, is in the physical damage area and claims associated with lower repair parts and costs.

“Cars are not in the fast lane but rather in the moderation lane as we continue to see an easing of inflationary pressures,” Shapiro says. “Supply chain challenges and frequency of accidents have waned in recent years and barring unexpected shocks, 2025 is likely to represent a continuation of a softening in auto insurance inflation.”  

In addition to the easing of inflation and supply chain issues, insurers have been boosting their rates over the last year or two to the point where the gap has closed between insurer loss costs and premiums charged to consumers, says Mark Friedlander, director of corporate communications for the Insurance Information Institute, an insurance industry trade group. 

Triple-I estimates the U.S. auto insurers will post a slight underwriting profit for full-year 2024, its first underwriting profit since 2020.

Triple-I’s forecasts a countrywide average personal auto rate increase of 7% in 2025. This is down from its estimates of 14% in 2023 and 12% in 2024, according to Friedlander.

John McCormick

 

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John was a deputy editor at The Wall Street Journal and had been an editor and reporter at a number of other media outlets where he covered insurance, personal finance, and technology.