Car Insurance Costs Are Rapidly Rising and Causing Higher Inflation

Surging car insurance rates contributed to the acceleration of inflation rates in March, adding to the financial burden on vehicle owners in the U.S.

Data released on Wednesday as part of the consumer price index shows a monthly increase of 2.7% in auto insurance rates, with a significant year-over-year rise of 22.2%. The consumer price index is a key indicator of inflation and provides an overall measure of the cost of goods and services in the economy.

Since December 2021, car insurance has been creeping up every month as part of the consumer price index. According to the U.S. Bureau of Labor Statistics, costs have surged by 45.8% since that time. Despite this, auto insurance maintains a relatively small portion of the CPI, with a weighting of 2.85%.

The rise in car insurance costs adds to the already historically high prices for new and used vehicles since the start of the COVID-19 pandemic. Repairing vehicles has also become more costly due to supply chain shortages, rising mechanic wages, and the incorporation of additional technologies like microprocessors, cameras, and sensors in vehicles. Together, these factors contribute to the rising costs of vehicles and insurance.

Sean Tucker, senior editor at Kelley Blue Book, the vehicle valuation and automotive research company, said, “There’s not a single factor, but I think the biggest factor is a combination of new cars and more expensive, so if you total your car the replacement cost is really high and a fender bender is very expensive right now.” He added, “The technology in the cars, it’s a very specific problem.”

In place of just needing to replace a plastic or steel bumper, a minor collision can now damage enhanced technologies such as cameras, proximity sensors, and other tools used for modern safety features like cruise control, parking assistance, and emergency braking systems on many vehicles.

David Sampson, CEO and president of the American Property Casualty Insurance Association, said, “Premiums have been on the rise because the cost of what goes into auto insurance has been rising. There’s a long lag time between when the trends emerge and companies see these loss trends existing. It then takes time for them to build that into their rate application filings.”