As most drivers are aware, the cost of insuring a car or truck has skyrocketed recently. Motor vehicle insurance costs rose 1.3% in August and 1.6% in September. That’s an annual inflation rate of between 15% and 19%.
Larry, a Geico customer in Naples, Fla., told us his car insurance premium recently went up by $70 a month so he called and talked with a Geico customer service rep.
“She couldn’t give me an explanation and we have had no accidents, tickets, or claims within the past five years,” Larry wrote in a ConsumerAffairs review. “I said that I wanted to know why my rate went up $70 a month. After several minutes, she came back to me and said ‘you’ve done nothing wrong, it’s just that they have paid a lot more claims in Florida lately.’”
It turns out that the year-long rise in the price of just about everything has finally reached the insurance industry. Jimmy Spears, head of Automotive at Tractable, a company that supports insurance carriers, says insurance companies’ costs are rising even faster than consumer prices.
Insurance industry hit with higher inflation than consumers
Spears says an auto insurance carrier does not purchase typical consumer goods, but rather specialty market goods such as automotive parts. He says those costs have increased 14.8%.
At the same time, used vehicles, which insurance companies must pay for to replace cars that are a total loss, have risen 48.3%. That makes purchasing new cars seem like a relative bargain – those prices are up 14.4%.
“The sectors impacting insurance carriers’ costs– health care, labor and building materials– all have higher inflation rates than the 8.6% consumer rate,” Spears told ConsumerAffairs. “Allstate is reporting that they have a higher than typical attorney involvement in claims, which is impacting their decision to increase rates in Georgia by 25% this year.”
Chase Gardner, a researcher at insurance comparison site Insurify, says other factors are also pushing car insurance rates higher. He says careless drivers are helping to raise the cost of premiums.
“Insurance companies are paying out more money this year than last in most states because drivers nationwide are causing 10.5% more fatal accidents compared to 2020, according to the National Highway Transportation Administration (NHSTA), and rising inflation is pushing up vehicle repair and medical care costs by 15% and 5% year-over-year, respectively,” Gardner told us.
Higher rates for truckers, too
Consumers aren’t the only people getting higher insurance bills. Dan Abrahamsen is co-founder and CEO of Cover Whale, a U.S.-based Insurtech focusing on the commercial auto industry. He says truck drivers are getting higher bills – something they’re accustomed to.
“For our truck drivers, we are hearing and advising customers to expect a 10% to 15% rate increase going into 2023,” he told us. “Truckers are no strangers to rate increases as they have risen the past 43 quarters in a row.”
Abrahamsen says the factors driving the rate increase this time are largely tied to inflation and include an increased cost to repair and more expensive medical bills. Julia Matseijovich, vice president of Product at Agile Rates, a rate comparison site, agrees there is not one specific thing driving auto insurance rates higher.
“Typically, rates increase and decrease over time due to several factors, including an increased risk,” she told us. “This could mean insurance companies have been paying more to cover accident costs or drivers have been engaging in riskier behavior and getting more traffic violations than they have in the past."
Hugh Allen, principal product strategist Hi Marley, a platform supporting the insurance industry, says the result of this is that motorists are “in a tough spot.”
“Now is the best time to compare your rates and ensure you are getting the best price and coverage,” he said. “Understanding the current trends in the market, consider researching insurance costs prior to acquiring a new or luxury vehicle. Nothing stings more than falling in love with your new ride only to find out the insurance is twice as much as its replacement."