Car Insurance Prices Are A Major Factor In Recent Inflation Surge: Report

The average new car transaction price in August — $48,451 — was down 2.4 percent from the start of 2023, marking the largest decrease in the last decade. That’s a great reprieve from the soaring heights of early this year, but current prices are basically identical to what they were in August last year. So while new cars are still quite pricey, they weren’t a factor in last month’s 3.7 percent inflation numbers. Likewise, used car index prices declined 1.2 percent. But car insurance, however, is another story altogether.

According to reports from Axios and NPR, auto insurance prices are rising at the fastest pace in over four decades. In the prior 12 months ending in August, auto insurance rates have jumped 19 percent. Between July and August alone car insurance rates prices rose by 2.4 percent. While car insurance isn’t typically a large line item on a household budget, it’s certainly becoming increasingly moreso.

If you sit and think about it, it’s pretty obvious to see why rates are soaring. With new car prices averaging nearly fifty thousand dollars, cars packed with more advanced tech, and parts shortages putting the screws to repair shops all over the country, the cost of repairing damage to your car is soaring. Just a decade ago a fender bender didn’t necessarily include costly replacement of advanced headlights and adaptive cruise control sensors.

Likewise, it takes little more than a few minutes out on the road to see drivers are making more aggressive driving their everyday way to get around. Anecdotally, the roads are scarier than I’ve ever seen them, but I live in Cleveland, which is routinely marked as one of the worst places to drive. It’s a nationwide trend, however, that crashes are happening with more frequency than they did in pre-pandemic times. It seems we have all picked up some nasty habits since 2019.

Even if you’re driving safely, climate change-fueled natural disasters can also take your car out. If your state is prone to wildfires or hurricanes, you might see an even higher spike than the national average. But it’s not just that, other storms are seemingly getting worse, too.

“We see a lot of hail damage,” Grace Arnold, Minnesota Commissioner of Commerce told NPR. “We consistently have billion-dollar storms in Minnesota, even if they don’t have the 24-hour hurricane watch ahead of them,” she added.

According to the Insurance Information Institute, auto insurers in the U.S. have paid out about $1.12 in claims in 2022 for every dollar collected in premiums. Insurance companies take your premiums and invest large quantities to cover the difference and turn a profit. So when insurance companies see more costly accidents, more expensive and frequent natural disasters, inflation, and their investments don’t cover the gap, they’re forced to raise prices. And there’s nothing we can do about that. It seems things will only continue to get worse.

Car insurance — all insurance, really — is little more than gambling, and the house (in collaboration with the government) is forcing you to raise your bets to cover their losses. You aren’t legally allowed to drive without placing a bet, so your only recourse to the high cost of insurance is to move to another casino. You can slightly lower your monthly bets if you want to accept a smaller payout in the event of an accident, storm, or theft. I guess it all depends on your risk tolerance.