Latest / Market Pulse / Strategies for Managing the Surging Auto and Home Insurance Costs

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Strategies for Managing the Surging Auto and Home Insurance Costs · Market Pulse

0:00
Welcome to the Market Pulse podcast.
0:02
I'm your host Thomas Aliff, team lead
0:04
for the Equifax Risk Advisors team.
0:06
This group identifies economic considerations and leverages
0:10
data and analytics to translate into industry
0:12
insights and recommendations, ultimately to support our
0:16
clients during economic uncertainty while uncovering growth
0:19
opportunities in consumer credit risk.
0:21
I am pleased to welcome back our panel
0:23
of experts in the risk advisors group, Jesse
0:26
Hardin, Tom O'Neill, Dave Sojka, and Maria Urtubey.
0:30
Welcome all.
0:31
So I guess as we get started here, does
0:35
anyone have any fun trips for the summer?
0:39
Yeah, I think I just really
0:42
excited about this Atlanta trip.
0:43
I may or may not have already taken it
0:46
and I may or may not already be here,
0:48
but Atlanta seems great this time of year.
0:52
I may be going to the one place hotter than Atlanta
0:54
and I'm going to New Orleans in a couple of weeks.
0:56
So looking forward to that.
0:59
Sounds very jazzy, amongst other things.
1:03
Yeah, I just got back from a wonderful
1:05
vacation with my children at Tybee Island.
1:08
It was a nice time.
1:10
It's outside of.
1:11
It's kind of an island off
1:13
of the Georgia coast by Savannah.
1:16
I had to look it up, Tom, but now I know where it is.
1:21
It's quite fun.
1:21
You can go on haunted ghost tours
1:23
of Savannah and things like that.
1:24
It's quite, quite enjoyable.
1:26
Yeah, we decided this year we were
1:27
going to take a fall vacation.
1:29
So we're going to see how they.
1:30
I've always wanted to do that.
1:31
I figured to miss the lines and the, and the heat.
1:35
And I'm going to Disneyland with my kids and
1:37
my nephew that is visiting, so should be fun. Awesome.
1:42
Cool. Thanks. Thanks everybody.
1:44
So in today's market pulse, we will
1:46
hear some prior excerpts from economic experts.
1:49
Doctor, uh, Amy Cruise cuts, Doctor
1:52
Rob Westcott and doctor Mark Zandi.
1:54
And the risk advisors will be able to provide
1:56
some commentary on the interpretation of the various findings
1:59
that they've been able to share with us.
2:02
So, Tom O'Neill, we've talked about the k shaped
2:05
recovery and yeah, I guess as we're, you know,
2:08
considering that there was a clip from, you know,
2:11
Mark Zandi in our last market pulse where he
2:14
went into some of these considerations.
2:16
Can you, can you weigh in on that a little bit?
2:19
Yeah, I'd love to.
2:20
And actually it was more than Doctor
2:22
Zandi himself, but also the other economists
2:25
also had some points to make.
2:27
So maybe we'll play a clip for that before digging in.
2:31
I think it's useful.
2:33
I'm trying to understand what's going on with
2:35
the consumer and affordability to really think about
2:40
the thirds of the income distribution.
2:42
If you're in the top third of the distribution.
2:45
I don't think this is hyperbole.
2:46
I think you're in as good a
2:48
financial shape as you've ever been.
2:49
I mean, literally, wealth has risen. No debt.
2:54
If you have any debt, it's a 30
2:55
year fixed rate mortgage locked in at 3.5%.
2:58
You got a job, your wages are rising, you
3:01
got plenty of cash sitting in the bank account.
3:04
Of course, I'm generalizing, but that top
3:05
third is in a very good spot.
3:07
Middle third, okay, kind of typical.
3:10
I wouldn't characterize it as being overly good or bad, is
3:15
what we would expect to see in a typical time.
3:18
Bottom third a problem.
3:20
The bottom third is struggling, and that's
3:22
where the affordability issues are really paramount.
3:26
As the economists during our last market
3:29
pulse were referencing the k shaped economy.
3:34
The k shape is a very useful tool and something
3:36
that's been helpful over the last few years to really
3:40
describe the people who have been flourishing over different economic
3:45
periods and those that have been struggling.
3:47
But what we've been finding is
3:49
that that's really not enough anymore.
3:52
When we look across different wealth tiers
3:55
and different income tiers and things like
3:57
that, we see that different populations are
3:59
impacted differently by these different events.
4:03
So even on a surface level, we may see
4:05
something like wealth increasing over the last few years
4:09
and say, well, things are going really well.
4:11
Populations have more wealth at their disposal.
4:15
But when we dig in a little bit deeper,
4:17
we see that that's really not the case.
4:19
And so that k shaped economy, while it's been
4:22
useful, it's really not describing the full picture anymore.
4:26
Hey, Tom, you and I, obviously, we have
4:29
a joint responsibility with our credit union folks.
4:32
And the talk over the last year or so has been
4:34
around deposits and really kind of as the, you know, as
4:39
the consumer, as the average american, manages their money.
4:43
And, you know, the upper part of that
4:45
K branch still has money deposited at those
4:49
financial institutions, inclusive of credit unions.
4:51
But then there are those that are, that
4:55
have kind of run, run through that.
4:56
So, you know, do you think that's
4:59
a concern as well on financial institutions?
5:03
Yeah, absolutely.
5:04
So something interesting that we've seen, looking at what
5:11
the financial institutions may be focused on, they may
5:14
be seeing what's in someone's savings accounts, their deposits,
5:19
and in a lot of cases, they're seeing those
5:21
amounts grow over the last few years.
5:23
And so at the surface level, you may
5:25
be thinking, this is a good thing, right?
5:29
Someone has more wealth to draw upon
5:32
than they had three years ago.
5:34
But again, it's important to put that into context.
5:37
When we account for inflation and we see what those
5:40
dollars are worth today as opposed to what they were
5:42
back in 2020, we see that it's a very different
5:45
picture, that while I may have more aggregate in my
5:49
account, that money isn't worth the same amount that it
5:53
was three, four years ago because of the impact of
5:55
inflation, I'm actually less able to meet those financial emergencies
6:04
or the day to day realities of my financial life
6:08
than I was maybe three or four years ago, even
6:10
though on paper it looks like my wealth has increased.
6:14
Sorry.
6:14
We were discussing that rule of thumb
6:16
cushion for emergency funds, the six month
6:20
savings ideal of monthly expenses.
6:23
And even for some households, getting just to
6:25
three months is a luxury, an indicator. Yeah.
6:31
Or maybe theyve still been going with the six months,
6:34
but those six months now will only cover three months.
6:38
What used to cover six months three years
6:40
ago isnt meeting the same thresholds today. Yeah.
6:44
And I guess when you think of the breadth
6:46
of inflation as well and just the notion that
6:50
so many different goods and services have increased in
6:55
price, I can see, Tom, to your comments about
6:58
the, across all the income bands, you think the
7:02
higher income bands, theyre dealing with inflation certainly differently
7:05
than those that have less income.
7:08
And it seems like even though lower incomes
7:10
are outpacing potentially inflation, those stressors are still
7:16
there when its so pervasive and everything that
7:18
you have to buy to live nowadays.
7:22
Yeah, thats an interesting point, too, Jesse.
7:25
And we heard the economists talk about that during
7:28
the last market pulse in saying that, maybe surprisingly,
7:32
the income tier thats had the most appreciation in
7:37
terms of their annual income are those bottom tiers.
7:41
Hourly workers and service sector employees have
7:46
actually grown in terms of their incomes
7:49
over the last few years.
7:49
And so youre thinking, well, thats great.
7:51
They must be in a better position to, to
7:54
make ends meet on a month to month basis.
7:56
But to your point, thats also the sector thats
8:00
most impacted that are seeing the biggest portion of
8:05
their incomes going to those daily needs things, the
8:08
things that have been most impacted by inflation.
8:12
Again, its putting all of that into context and
8:14
realizing that while it is true that wealth has
8:18
grown, that income has grown, that doesnt mean that
8:21
people are happy about their financial situation.
8:24
Yeah, I find a lot of that quite interesting.
8:26
Specifically, we talked about a number of things,
8:28
income, wealth, credit, even the k shape is
8:32
essentially what im hearing is a flattening of
8:34
the distribution across all those things.
8:35
And then tying that nuance together is really the
8:39
way to manage through that, with respect to understanding,
8:43
how can we understand where income is comparatively with
8:46
respect to inflation, how does the wealth picture tie
8:49
in and then ultimately credit, and then thinking about
8:52
that through the underwriting process, with things like debt
8:55
to income payments income, and do they have the
8:58
disposable income to be able to cover their debts
9:01
appropriately?
9:02
So let's go ahead and pivot. Maria.
9:05
With inflation coming down substantially, we're hearing
9:09
about the disconnect with consumer sentiment and
9:11
the k shaped recovery, and it's likely
9:14
even that, given where things are sitting.
9:17
I'm hearing some chatter about some potential interest
9:20
rate reduction, but I'm not quite sure where
9:23
we might be sitting with that.
9:24
But maybe you can comment on that.
9:26
It really comes down to a disconnect between the concept
9:31
of falling inflation, which is prices are still going up,
9:35
but at a slower rate and the level of prices.
9:38
So eggs are up 49% versus where
9:41
they were two or three years ago.
9:43
Gas prices are up.
9:45
These high frequency things that we look at,
9:48
if you just got your car insurance bill
9:50
like I did, that's up about 50%.
9:53
So a lot of these things that we're
9:55
paying for are at much higher prices.
9:58
And even if we've been lucky enough to have incomes
10:01
that keep up with it, it still seems to hit
10:04
us emotionally, even if we're maybe holding up financially.
10:09
Yeah.
10:10
The June number was released last
10:12
week, and it was at 3%.
10:14
May was at 3.3.
10:15
We were at 3.4 in April.
10:17
We've been in the three since June of last year.
10:21
We're getting close to the Fed target of two.
10:23
But while income growth has outpaced inflation,
10:26
it's not the case for everyone.
10:28
We're going back to the k shape economy.
10:31
We just heard from AV on the
10:33
rise of eggs, let alone auto insurance.
10:35
We have heard from some of our market positives
10:38
whose incomes have not kept up with inflation.
10:41
And while car prices have dropped, if you need
10:44
to buy a new car at an average of
10:46
48 to 50,000, it's nothing considered affordable but necessary.
10:51
And we have even heard from older,
10:54
stable, near retirees households, for example, postponing
10:58
the retirement plans as a result of
11:01
the how they're impacted by inflation.
11:04
We also hear, and we read about
11:06
some consumers even becoming more price conscious.
11:09
Dave, you shared even people are limiting
11:13
spending on areas such as chips, right?
11:16
So these nuances of minute, you
11:20
know, grocery shopping, everyday items are
11:24
under surveillance and being looked into.
11:28
Hey, Maria, I've got a question for you.
11:31
Given that you're our resident argentinian, do you
11:36
just laugh at the notion that we're worried
11:37
about two to 3% in a way.
11:42
But it makes sense, again, how that in a
11:44
way triggers these more conscious and more in a
11:49
way, again, decisions on what is luxury versus what
11:54
is an expense that you need to afford. Yeah.
11:59
And it sounds like the good news is that the
12:03
recent comments from Chairman Powell seemed to indicate maybe more
12:07
of a focus on 2% or somewhere north of 2%
12:12
than that hardened fat number of hitting 2%. Yeah.
12:16
It is encouraging Jesse to hear the comments coming
12:18
out saying, look, we're not going to assume that
12:23
there's a magic target that we have to meet.
12:27
And if we don't, then we stay the course
12:31
that it's going to be a matter of looking
12:33
across the entire landscape and across all of the
12:35
data and say, okay, when is the right time?
12:37
How many times should we do this?
12:40
And also related to that understanding that there's less
12:45
of an aversion, it seems like to the political
12:50
schedule as typically we would hear, and that there's
12:54
comments being made saying, look, we're going to do
12:57
this when the time is right and we won't
12:59
let other factors weigh in on that.
13:02
So it seems like while we're not there, there's definitely
13:07
a lot of nice movement in the direction that we
13:10
want to be going, you know, for this with back
13:13
to school coming up, it's kind of interesting to, you
13:16
know, I've been looking at the things that I have
13:18
to get for my kids this year and the prices
13:21
for school supplies increased, I think, by about 24%.
13:24
And, you know, it's quite interesting.
13:25
I think it's, you know, with, you
13:27
know, within the framework of inflation increasing
13:29
to the levels that it has.
13:30
There's a lot of things like that as we,
13:32
as we move through the, through the year from
13:34
a seasonality perspective on, on some of those impacts.
13:38
And specifically even like, if we look at educators, a
13:40
lot of them are having to buy a lot of
13:41
their own school supplies or find ways to that.
13:43
A lot of my, you know, just various people
13:45
I know, friends are starting to advertise on like
13:47
social media that can you, can you help buy
13:49
these supplies for us and things?
13:50
So it's quite interesting to see some of those
13:53
impacts that, you know, that have been occurring.
13:56
Well, frankly, Tom, as the spouse
13:58
of a teacher, that's nothing new.
14:01
Yeah, I was going to say same here tomorrow. Same.
14:07
Just maybe, maybe it's how many things are
14:10
in the list that you asked for.
14:11
Maybe that's what's changed.
14:13
Yeah, we didn't do that when I was a kid, you
14:18
just had to walk 5 miles both ways in the snow. Yeah.
14:22
Fairfax. Yeah. So.
14:23
All right, Dave, we've seen some categories of delinquency at
14:29
or near peaks and that we saw during the great
14:32
recession and the start of the pandemic, and some of
14:35
those are on the rise or moving down.
14:38
Can you start the discussion around that? Yeah.
14:41
Thanks, Tom.
14:42
So obviously, we've been talking
14:44
about delinquencies for several months.
14:47
It's been in the news.
14:50
And then I think we've got a quote
14:51
from Mark Zandi, and I think it's around
14:54
whether he thinks delinquencies have reached their peak.
14:57
So let's listen to that.
14:58
I do think delinquency rates on consumer credit
15:01
are peaking in addition to the solid job
15:05
market and expectations for, for, excuse me, for
15:14
interest rates to come down.
15:15
That should be enough to allow delinquency rates to
15:19
moderate here as we move forward, I think there's
15:22
a story to be told in terms of how
15:25
we got here and where we need to go.
15:27
So obviously, during the lockdowns, consumers weren't
15:30
spending and we had supply shortages.
15:33
Adding to the reduction in spend, a lenders realized
15:38
people weren't working, there were layoffs and so on.
15:40
So again, and there wasn't really a desire
15:43
to grant new credit, and so there was
15:47
a pullback in terms of lending.
15:48
Once stimulus funds were issued,
15:50
consumers started to spend again.
15:52
Eventually, for some, that stimulus dried
15:55
up and they needed new credit.
15:57
Lenders seeking an opportunity resumed lending to
16:00
take advantage of a fruitful credit seeking
16:02
market, and that started the problem.
16:07
While delinquencies have run up over the last nine
16:09
months or so, there's been a recent improvement.
16:12
We've seen bank card, private label and
16:15
auto delinquencies rise above 2011 levels.
16:19
But first, mortgage and personal loans saw
16:22
delinquencies that rose but remain well below
16:25
those of the previous peak.
16:27
We've been discussing for several months now that the
16:30
2022 and 2023 vintages are performing worse than earlier
16:34
vintages and are likely caused by a loosening of
16:37
credit standards and some score inflation. Steven? Yeah.
16:41
One of the things I was thinking about as well,
16:43
when we think of what Maria was saying in terms
16:46
of hitting maybe the 2% inflation target and seeing rate
16:51
reductions, when we think about the types of loan products
16:56
that were most impacted with increasing rates, you think of
17:00
the, certainly credit cards, you think of personal loans, some
17:06
of those products that had variable rates.
17:09
I do wonder as we start to see a reduction
17:12
in potentially the Fed funds rate thats going to translate
17:15
into the rates that overall loan holders are paying.
17:21
I wonder if that would have a potential
17:22
impact, maybe in delinquency as we start to
17:24
see a decrease in the interest portion of
17:27
the payment that, that Lindy would make.
17:31
Any thoughts on that? Yeah, thanks.
17:34
Obviously, that's the hope, is that as rates
17:37
come down, and obviously the direct correlation to
17:41
that rate is the minimum payment requirement, specifically
17:44
on a credit card revolving debt, obviously from
17:49
the auto, from the mortgage side, those are
17:52
fixed, but that might encourage, as those rates
17:55
come down, the entrance into the market.
17:59
For the people that have been on the sidelines
18:00
that have been priced out, there's some impetus there.
18:03
So I think having rate reduction will help.
18:07
Unfortunately, we all know as prices go up very fast,
18:10
they don't like to come back down very quickly.
18:12
And so we'll see how soon lenders react to
18:17
reducing the interest rates on the revolving products, on
18:21
the fixed products, once the fed starts cutting.
18:25
And we have seen overall, Dave, when we were
18:28
discussing delinquency, even at that sub, at the subprime
18:31
level, over at least the last five to six
18:34
months, there has been some flattening.
18:36
So even though some asset classes have
18:40
exhibited higher than ideal delinquency levels, they
18:44
seem to be more under control.
18:46
Lenders have responded, adjusting
18:50
their underwriting procedures. Right.
18:53
And a question on that, Maria, and maybe this is
18:56
to the whole group, but as we see some signs
19:00
of softening in the delinquencies and some positive movements there,
19:04
do we feel that that's seasonally impacted or do we
19:08
think that it's more than just what we would naturally
19:11
tend to see this time of year? Yeah.
19:14
So what we've seen is that year over, you know,
19:17
every, every, we'll say January through May, if you will.
19:21
There's a, that period, that five month
19:24
period, within that month, sometimes it's three
19:26
months, sometimes it's two, sometimes it's four.
19:30
There's a reduction, a cyclical reduction, seasonal reduction,
19:35
right around tax season, consumers are taking their
19:38
tax returns and are paying down their debt.
19:41
So we see delinquencies fall.
19:43
I think it bears in mind, kind of comparing what
19:45
that rate of decrease in 2024 has been versus others.
19:49
It's a little bit less than what we've
19:52
seen in years past, in years past, going
19:55
all the way back to, say, 2013, 2014.
19:59
But I think it's on the right track.
20:02
I just wanted to, before we leave the
20:03
delinquency point, I wanted to go back to
20:05
Maria's point on subprime, and that's really where
20:08
we've seen lenders react to the rising delinquency.
20:11
They've cut back on the subprime lending.
20:15
And that's really where a lot
20:17
of the delinquency has been.
20:19
You see that across the various outlets
20:22
talking about subprime delinquency is a real
20:25
cause of concern, and lenders have reacted
20:27
by restricting the volume associated with that.
20:31
So kind of tying up to Mark's comment about whether
20:37
it's peaked or not, I think I'd offer cautious optimism.
20:40
Unemployment is lower, inflation is slowing.
20:43
But obviously, Tom, as you pointed out, with
20:46
the k shape out there, some Americans are
20:48
doing great and their credit reflects that.
20:50
And unfortunately, on the lower side of the
20:53
decay, that group bears more closely monitoring.
20:57
I think as we're watching the delinquency
20:59
levels, it's critically important for us to
21:02
see how payment hierarchy pans out.
21:05
And specifically when there's often like, as credit card
21:09
utilization rises, what the delinquencies are oftentimes a fast
21:15
follow for anyone who's on the cusp of not
21:19
being able to pay their credit card.
21:21
And then once that starts happening, then they'll have less
21:24
available credit based income for them to be able to
21:27
cover various debts as we think about inflation.
21:30
So watching and observing, especially with student loans
21:33
coming back into repayment in a few months,
21:35
to see what is the peripheral impact of
21:36
student loans as it carries through into credit
21:38
card, as that carries through into the other
21:41
asset classes like auto mortgage, etcetera.
21:44
So let's pivot with one more
21:47
question here and talk about spending.
21:50
So, Jesse, we've seen retail spending continue to stimulate
21:53
this economy with some of the recent data trends.
21:56
Do we see this continuing? Yeah. Thanks, Tom.
22:01
It's almost like we planned it today, but
22:03
we had a new release of the Census
22:07
bureaus advanced estimate of retail sales.
22:10
And on the month there was no growth.
22:13
So it was actually 0%.
22:15
We saw an increase from last month, a revision
22:17
to the number of 0.3% month over month.
22:20
So year over year were still
22:22
seeing growth in retail spending.
22:24
Thats certainly a good sign.
22:25
I think its really important to go back and
22:27
look at what we talked about last year.
22:30
And the health of the economy was really propped
22:33
up by a couple of things, really the american
22:35
consumer and the way that they were spending.
22:38
And then also that Americans were employed.
22:41
And we saw that as Americans continue to be employed,
22:45
then they continue to spend on goods and services.
22:47
And so certainly we look to the labor markets to
22:51
kind of see if there are any warning signs there.
22:54
Labor markets, I think, have been reaching a
22:56
normalization more than theyve really been pulling back.
22:59
And thats a good thing.
23:00
That certainly decreased some of the stress on the Fed in
23:04
terms of how they had to manage the, the economy.
23:07
But I think were also seeing that consumers
23:09
are really starting to be more choosy about
23:11
where and how theyre spending their money.
23:13
And so I think many have decided really to not
23:16
buy in certain segments or they choose different choices to
23:21
mitigate some of the costs that theyve seen.
23:23
And I think producers are really
23:25
starting to take notice of that.
23:26
And so we see some producers have talked about
23:29
lowering prices, which is obviously a good sign.
23:31
Amy, I think, said it best in the clip.
23:34
Lets take a listen to this clip here.
23:36
Prices are not falling and we
23:38
shouldn't expect them to fall.
23:40
The best we can hope for is
23:42
that the prices kind of steady out.
23:44
And we get back to the Fed's
23:45
target inflation rate of about 2%.
23:47
So I think we have to remember,
23:49
really that prices ran up very quickly.
23:52
They increase very quickly into 2021 and 2022.
23:57
And so it's going to take time
23:58
for those prices to come back down.
24:00
Remember, when we talk about inflation, we're really
24:02
just talking about the growth of prices.
24:04
Were not talking about the deceleration of prices.
24:07
And so I think we're going to continue in
24:10
the long run to see that Americans, they're doing
24:12
quite well and they're going to continue to spend.
24:14
But I think in the short term, I think we
24:16
will see these prioritization and even pushback of where consumers
24:21
are looking to spend their money as they feel the
24:24
prices have just gone out of whack. Yeah.
24:27
Jesse, I think one of the biggest
24:30
indicators of that would be vehicles.
24:33
I think we've seen the average vehicle
24:36
on the road is twelve years.
24:38
And so many Americans are keeping their vehicles longer
24:42
rather than looking to purchase that new car.
24:44
So going back to some of the origination fioms I was
24:46
talking about, and so, again, how much money can I afford
24:51
for repairs versus trade in and get a new car?
24:55
Oh, but it's, you know, it's
24:56
a 9.510 percent interest rate.
24:59
My payment's going to be upwards of $750.
25:02
And so how do I do the math there
25:05
to decide where do I spend my dollars?
25:08
Yeah, I was just going to say.
25:09
That's a good point, Dave.
25:10
I think it was a point that Rob brought
25:13
up in terms of the consumer looking at new
25:17
vehicle prices, and those are falling to some extent,
25:21
lots of rebates that dealers are offering.
25:24
And so hopefully, the notion that Maria
25:27
talked about when we talked about the
25:30
interest rates potentially falling as a result
25:33
of the fed movement, fed potential movement.
25:36
Hopefully, we'll see that trickle down
25:38
to auto prices as well.
25:41
Thank you to my friends Dave, Jesse,
25:44
Maria and Tom for joining me today.
25:46
To our listeners, I hope you enjoyed today's topic.
25:49
If you have questions, suggestions for future podcasts,
25:52
please reach out to us at riskadvisors@equifax.com.
25:55
dot we look forward to hearing from.