Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Car Insurance Premiums
Transcript
- Lucas: So Luna, I just renewed my car insurance, and let me tell you, my jaw hit the floor. The premium went up almost 15 percent from last year, and I haven't filed a claim in a decade. So I dug into it, and this is a textbook case of inflation quietly eating your money. Luna: Fifteen percent? That's brutal. I thought inflation was cooling off. The CPI actually dipped in June, right? Down to 332.6 from 333.98. Lucas: Exactly, headline inflation is rolling over, but insurance premiums are still getting hammered. In fact, the average car insurance premium has jumped about 19 percent since 2023, way ahead of the overall CPI. And what's fascinating is the disconnect: the consumer price index for new and used cars is barely moving, but the cost to fix that car is soaring. Luna: So why are repair costs climbing so much? Is it parts, labor, or something else? Lucas: All of the above, honestly. Parts prices are up around 12 percent year-over-year, and labor rates at body shops have gone up, too. Plus, modern cars are packed with sensors and cameras that make repairs way more expensive. A minor fender bender that used to cost eight hundred dollars now runs you two grand. Luna: And that gets passed directly to us. I read that Florida's premiums have gone up something like 40 percent in the last couple of years. That's insane. Lucas: Yeah, Florida is a perfect storm: litigation abuse, fraud, and now these new laws aimed at reining that in. But the ripple effect is across the country, and insurers are repricing risk. And here's the thing: they're not just looking at current inflation. They're looking at the 10-year breakeven inflation rate, which is sitting at 2.28 percent. That tells you the market expects inflation to stay above the Fed's 2 percent target for a while, so insurers are pricing in more future hikes. Luna: So it's not just your driving record anymore. It's macroeconomics, basically. Lucas: Exactly. And that means your premium is now tied to stuff like the Iranian situation and diesel prices. I saw a headline about California diesel spiking after the Iran war started, and that has ripple effects on shipping costs, which trickles into parts prices. So you're paying for geopolitical risk with your auto insurance. Luna: That's wild. So what can a regular person do? I feel like we're just stuck with these increases. Lucas: Well, that's what we're going to dig into. But Luna, before we get deep into the strategies, I want to mention something. If our money conversations have helped you think about your own finances, you know, even just a different perspective on your car insurance renewal, it would mean a lot if you considered supporting the show. Luna: Yeah, it's what keeps the podcast ad-free and independent. Just a small token of appreciation, like buying us a coffee. Lucas: Honestly, if today was worth a coffee to you, that's the link. It's buy me a coffee dot com slash fexingo. No pressure, just thank you for that. But let's get back to your premiums. Luna: So, give us the playbook. How do we fight back against these 19 percent hikes? Lucas: First, shop around. Insurance companies are not all pricing the same way, and they're not equally exposed to these cost increases. I've seen quotes for the same driver, same car, vary by as much as 40 percent between companies. So you can literally save hundreds of dollars just by switching or negotiating. Luna: But it's a pain to switch, right? I know people who've been with the same insurer for twenty years. Lucas: Yeah, but loyalty is punished these days. Insurers often jack up rates on long-term customers because they know you're less likely to leave. So you have to be willing to switch or at least threaten to. That's a concrete way to claw back some purchasing power. Luna: Right. And I've heard that bundling home and auto can save you a lot. Is that still true? Lucas: Yes, bundling is still a solid discount, usually 15 to 20 percent off each policy. But here's a tip: even if you bundle, you should compare bundled quotes from different companies, because the discount isn't the same everywhere. And don't assume your current insurer is giving you the best deal. Get three or four bundled quotes. Luna: What about raising your deductible? I've always been nervous to do that, because what if you actually get into an accident? Lucas: That's a real trade-off, but raising your deductible from 500 to 1,000 dollars can cut your premium by up to 15 percent. And if you have an emergency fund, which we've talked about in a previous episode, you can afford that higher deductible. So you're self-insuring that risk, which is a rational move if you have the cash. Luna: Right. And maybe I should look into usage-based insurance? Those apps that track your driving. Lucas: Yeah, telematics can be great if you're a low-mileage, safe driver. Some of these programs offer 20, 30 percent discounts for good driving. But be careful about the privacy trade-off, and make sure you're comfortable with the insurer tracking your every move. That said, if you're a safe driver, it's a legitimate way to fight back against inflation. Luna: And I've heard that electric vehicles are actually more expensive to insure. Is that factoring into everyone's rates? Lucas: It is. EVs cost more to repair, and they're heavier, which can cause more damage to other cars. So insurers are pricing that in, and that has a knock-on effect on everyone's rates because as the car park changes, the overall risk profile changes. I read that EV insurance premiums are about 15 percent higher than comparable gas cars, and that's pushing up the average for all of us. Luna: So it feels like every angle is just adding to the problem. What about the idea of dropping comprehensive or collision on an older car? Is that ever a good move? Lucas: Absolutely. If your car is worth less than, say, 3,000 dollars, the premium for comprehensive and collision might not be worth it. You could drop those and just carry liability, which is the legal minimum in most states. I had a beater in college, and I only carried liability. Saved me a ton. Luna: That makes sense. And I guess the key is to see insurance not as a fixed cost, but as something you can actively manage, like any other expense. Lucas: Exactly. And that's the overarching theme of this show: inflation is nibbling at your purchasing power, but you can take steps to protect yourself. With car insurance, doing an annual review, shopping around, and adjusting your coverage based on your actual needs can save you hundreds, maybe over a thousand dollars a year. Luna: But I also want to ask: is there any sign that these premium increases are going to slow down? The breakeven inflation rate is around 2.28 percent, so maybe the worst is behind us? Lucas: That's the big question. The repricing cycle in insurance tends to lag the inflation data by a year or two. So even though CPI is cooling, insurers are still catching up with the cost increases they've already absorbed. I'd say we're probably in the middle of this wave, not at the end. And if another shock hits, like the Iran situation affecting oil prices, that could keep pressure on. Luna: So what's your forward-looking advice, Lucas? What should listeners do in the next six months? Lucas: Set a calendar reminder to review your policy twice a year. Treat it like a job performance review. Get quotes from at least three insurers, and don't be afraid to switch. And if you can, improve your credit score, because in most states that's a big factor in your premium. That's a concrete way to beat inflation. Luna: Great advice. I'm going to shop around this weekend. My renewal is coming up, and I'm not going to just accept that 15 percent hike. Lucas: Good. And since the S&P 500 is up over 2 percent this week, you're probably feeling good about your investments. But if you're not also managing your insurance costs, that's money leaking out of your budget. It's all connected. Luna: Yeah, it's a great reminder that inflation doesn't just hit the grocery store. It hits every line item, even the ones you think are fixed. Lucas: Exactly. So the takeaway: car insurance is one of the areas where you still have control. Shop, negotiate, and adjust your coverage. And keep an eye on those breakeven rates, because they're a window into where premiums might be heading. That's what we're here for. Luna: And if you want to help us keep these conversations going, you know where to find us. But for now, thanks for listening, and we'll catch you next time. Lucas: Actually, don't forget to check our previous episodes on emergency funds and credit scores. They tie directly into what we talked about today. Until then, keep your premiums low and your savings high.