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Auto Insurance Rates See Biggest Jump Since the 1970s
May 28, 2024
Soaring rates for auto insurance have been a major driver of inflation over the past year, as higher car prices, costlier repairs, and post-pandemic changes to driving habits have sent premiums skyrocketing.
Motor vehicle insurance costs rose 1.8% in April on a monthly basis and were up a staggering 22.6% from a year prior. That is the largest annual increase since 1979, according to a recent report from Bank of America.
Researchers at B of A attributed the surging insurance costs to three main sources: higher vehicle prices, increased costs for repair, and an increase in accidents in recent years as driving trends return to their pre-pandemic norms.
These trends resulted in higher-than-expected underwriting losses in the insurance industry, which they have passed onto consumers in the form of higher premiums.
There is good news for consumers, however, as the trends driving higher insurance costs appear to be subsiding. Sales prices for new and used vehicles, which spiked during the pandemic era supply chain disruptions, have been trending lower in recent months. Sales prices of new vehicles were down 0.4% annually in April and used vehicle prices plummeted 6.9% on a 12-month basis. Repair and maintenance costs were also flat in April, though still up 7.6% from a year prior.
The recent trends make it unlikely that premiums will come down, but the pace of increases should slow. An abatement of insurance cost increases would be welcome news for inflation readings. The consumer price index (CPI) attributes nearly 3% of its total weighting to auto insurance costs, making it a significant component. Easing inflationary pressure among auto insurance could bring headline inflation figures down, helping clear the way for the Federal Reserve to begin cutting interest rates.
