FX168 Financial News (North America) — Rising auto insurance rates in the US are squeezing the living space of car owners and increasing inflation.
Auto insurance rates in the US rose 2.6% in March, up 22% from the same period last year. Premium costs have been rising steadily since 2022, although consumer-level inflation has steadily cooled from its peak of 9.1% in the middle of the year. As the rising cost of food and energy, the two key components of most budgets, has greatly slowed, consumer sentiment has eased somewhat.
But auto insurance and the cost of owning a car have become the crux of the dispute between consumers and the Federal Reserve to control inflation at 2%.
As a rule, personal premiums increase significantly due to speeding tickets and other violations. Other reasons include an increase in new drivers or a general increase in claims in the region.
But interest rates have continued to rise much more in the past two years. New car prices began to soar during the pandemic, mainly due to a global shortage of computer chips due to production cuts and supply chain bottlenecks. Dealers had few or no cars in stock for most of 2021.
According to Edmunds.com data, in 2024, the increase in car prices has slowed. The average price in January was 47,338 US dollars, lower than the peak of 48,516 US dollars at the end of 2022.
The higher value of automobiles, combined with more advanced technology and complex parts, increased overall maintenance costs. According to data from the US Bureau of Labor Statistics, overall maintenance and repair costs rose 8.2% in March compared to the same period last year. This has been somewhat mitigated from last year, with an increase of 14.2% in early 2023.
Greg Smolan, vice president of insurance business at AAA Northeast, said, “Over the past two years, severity has really been the biggest factor affecting rates. Cars with curved fenders in the past didn't have all the sensors and cameras.”
As overall car prices and car maintenance costs have risen, insurance companies have begun to raise premiums. The rise in insurance rates, like many other increases from food to clothing, has been sticky, and is unlikely to fall at the same rate as broader inflation.
This is beneficial for insurance companies whose profits are surging. Wall Street anticipates an even bigger leap forward for insurance companies in 2024.
Progressive CEO Tricia Griffith said during the fourth quarter earnings call: “Our only concern last year was getting the right interest rates. We think we're in a very good position right now.”
In 2023, Progressive's profit soared 50%, and revenue soared nearly 18% to reach $62.1 billion. Wall Street expects its profits to soar by nearly 80% and revenue by 14% in 2024.
Allstate (Allstate) made a small profit in 2023 after reporting losses a year ago. Wall Street anticipates that by 2024, its profits will soar 13 times, and revenue will increase 10% to reach $62.9 billion.
The process of buying car insurance can be confusing and overwhelming, given each state's different requirements, additional options, and confusing industry and legal terms used by insurance companies. According to the Insurance Information Institute, for many people, the first step should be to better understand car insurance.
Consumers should shop around and get at least three different offers from different types of insurance companies. Additionally, comparing costs before buying a car can help consumers better understand the true cost of owning a particular car. The premium part depends on the price of the car as well as the expected repair costs and safety data.
Additionally, bundling multiple policies under one insurance company may result in discounts. This is common among people who use the same company to buy home and car insurance policies. There may also be discounts for insuring multiple vehicles from the same company.