Why is the cost of car insurance skyrocketing?
Consumer inflation was pretty moderate in October, with prices overall rising 2.6% year-over-year. But, inflation rates for specific expenses can be all over the map. Just look at the costs for driving, for instance: gasoline is down more than 12% from a year ago, and the price for used cars and trucks is down 3.4%. Meanwhile, repair costs are up by more than 7% and insurance bills have climbed by 14% — which is more than five times the rate of inflation overall.
Let’s start with insurance — you can’t legally drive without it.
Mark Friedlander at the Insurance Information Institute, an industry-supported research group, says insurers’ costs and losses are up.
“What we have seen, particularly since the pandemic, is a high level of accident frequency and severity,” he said.
At the start of the pandemic, insurance actually got cheaper for a little while, said Etti Baranoff, emeritus professor of insurance at Virginia Commonwealth University:
“2020, you know the rates went down like crazy because people were not driving,” she said.
But as people got back on the road, premiums headed up again: nearly 8% in 2022, and more than 17% in 2023. Mark Friedlander ticks off the reasons:
“Number one is rising costs of repairs, more technologically advanced vehicles,” said Friedlander.
And higher wages for the auto-mechanics who know how to fix them.
“Other factors: vehicle thefts; rising medical costs for accident victims; more distracted driving than pre-pandemic—people are playing with their phones, texting while driving,” he said.
Another force driving up costs, said Baranoff, is the weather.
“It’s not just homes that are being destroyed. Cars are being destroyed,” she said.
Thousands of them, just in this year’s East Coast hurricanes alone. Add in floods and wildfires across the country, that’s a whole lot of insured vehicles being totaled and having to be replaced, driving insurance premiums higher.
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