Last month, I brought you a story about how car insurance prices had risen so high they were changing car shopping. I wrote the story because the cost of the average car insurance policy had risen 0.9% in February.
It nearly tripled that in March. Car insurance costs rose 2.6% last month, according to the Bureau of Labor Statistics.
Insurance costs factor into the Consumer Price Index (CPI) – the government’s primary tool for measuring inflation.
The CPI increased 0.4% last month, adjusted for normal seasonal fluctuation. Some expenses that factor into the number decreased, like used car prices (down 1.1% after adjustment) and fuel oil (down 1.3%). But gasoline, housing, electricity, and, yes, car insurance canceled out any chance for improvement.
Insurance costs are rising so quickly that, last month, Federal Reserve Chairman Jerome Powell cited them as one reason the Fed is keeping interest rates high.
The average car insurance policy now costs 22.2% more than it did just one year ago.
Insurance costs can vary widely from state to state. That creates nationwide figures that don’t relate to what Americans in some states pay. But the nationwide average is still illustrative — the average 6-month insurance policy now costs $827.85, up from $677.45 a year ago.
What’s Driving Costs So High?
There isn’t a single reason car insurance costs are soaring, but a few factors are easy to identify.
It Costs More Than Ever To Total Your Car
One is that Americans spent more on cars in recent years. Car prices rose during the COVID-19 pandemic, with many buyers paying over sticker price. That left mostly higher-income, better-credit Americans able to shop for new cars.
Automakers adjusted their plans for that market, canceling inexpensive cars and designing more high-end models. The number of cars for sale under $25,000 crashed. The number for sale over $60,000 grew.
As the average price of cars on the road rises, the cost of a total replacement after a major accident rises with it.
Related: Totaled Car – Everything You Need To Know
It’s More Expensive Than Ever To Get Into A Fender Bender
But you don’t have to total your car to learn about expensive repairs.
Today’s cars are more technologically advanced than ever. Some of that technology is in vulnerable places where it’s easily damaged in a minor accident.
Related: Here’s How Much the Average Car Repair Now Costs
A fender bender once damaged just the fender cover and the fender underneath. Today, it can damage cameras, radar sensors, ultrasonic sensors, and the wires that power them. Those sensors help run parking assistance systems, smart cruise controls, and similar high-tech features. Because they judge the distance from other cars, they’re mounted on the car’s exterior, easily damaged.
Even a simple side mirror replacement can now involve replacing blind-spot sensors.
But Insurance Costs Are Rising Faster Than Repair Costs
Insurance isn’t the only car-related cost factored into the CPI. When the Labor Department calculates inflation, it also considers car repair costs. Looking at that, a curious fact emerges – car repair costs rose just 1.7% last month, while insurance costs rose 2.6%.
So repairs alone don’t explain the increase.
Insurers may also be nervous about the increasing effects of climate change. Some have even left vulnerable states altogether.
“In the longer term, companies are withdrawing from writing insurance in some coastal areas,” Powell told Congress last month. “It’s a significant issue.”
Finally, your insurance company has insurance. Insurers buy so-called reinsurance to help offset unexpectedly high costs. Reinsurance costs have soared in recent years, driven by payouts on expensive disasters like wildfires.
What You Can Do
If you’re not car shopping, Kelley Blue Book recommends that drivers shop for insurance every six months, anyway. There’s little you can do to control your insurance costs, but it makes sense to explore lower prices and create competition for your business.
If you are car shopping, get insurance quotes on your future car before you put down the first dollar. In a world where insurance costs increase by nearly 25% a year, some shoppers find that they can afford the car they want but not the insurance for it.
To keep yourself out of that position, know the insurance cost before you buy a car.
How To Estimate Insurance Costs Before Buying A Car
