Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Inflation Is Quietly Eating Your Car Insurance Premium
Transcript
- Lucas: If you drive a car, you have probably noticed your insurance premium creeping up every six months like clockwork. But the numbers behind that feeling are actually pretty stark. Luna: I just got my renewal notice last month and it was up almost 15 percent from a year ago. I thought it was just me. Lucas: Not just you. The Bureau of Labor Statistics reported that the CPI for motor vehicle insurance rose 18.5 percent year-over-year as of June 2026. That is more than four times the overall inflation rate. Luna: Wow. So the official data confirms what drivers are feeling. But what is actually driving those increases? Is it just general inflation, or something more specific to insurance? Lucas: It is a mix, but the biggest factor is repair costs. When you get into a fender bender today, the bill is much higher than it was a few years ago. New cars are packed with sensors, cameras, and advanced materials. Replacing a single headlight assembly on a modern pickup can run $2,000 or more. Luna: And that is before you touch the paint or the labor. Body shops have raised their hourly rates significantly too. Lucas: Exactly. Parts and labor together have pushed average auto repair costs up more than 20 percent since 2022. Insurers have to pass those costs through to premiums. Then there is the medical side. Injury claims are more expensive because hospital costs have risen faster than general inflation. The core PCE price index, which the Fed watches closely, was up 2.1 percent year-over-year in May, but medical care services have been running closer to 3 percent. Luna: So your premium is really a bundle of two inflated costs: fixing the car and fixing people. Lucas: Exactly right. And there is a third factor — the frequency and severity of accidents. We are seeing more accidents per mile driven after a dip during the pandemic, and those accidents are more severe. The Insurance Institute for Highway Safety reports that fatality rates per mile are still above pre-pandemic levels. More severe crashes mean bigger claims. Luna: So the insurance pool is getting more expensive to cover. But here is the thing — the CPI for car insurance is based on a national average of premiums. Does it really capture what individuals are paying? Lucas: That is the tricky part. The CPI measures a fixed basket of goods, but insurance pricing is highly personalized. Your credit score, driving record, where you live, and even your occupation can affect your rate. So the national average might be up 18.5 percent, but someone in Michigan or Florida could be seeing 25 or 30 percent increases because of state-level factors like lawsuit frequency or weather risk. Luna: And if you have a clean record and live in a low-risk state, you might see a smaller increase. But the headline still matters because it sets expectations. Lucas: Exactly. The national number is a useful benchmark. But the real question for listeners is: what can you do about it? Because unlike groceries or gas, you have some levers to pull. Luna: Before we get into strategies, I want to mention something here. If you find conversations like this useful — whether it is understanding how inflation hits your wallet or thinking through a financial decision — we want to keep this podcast free and ad-free. The way that happens is through listeners who chip in at buy me a coffee dot com slash fexingo. That is buy me a coffee dot com slash fexingo. It is a small way to support the work, and every bit helps us keep the lights on without running ads. Lucas: And we really mean it — no pressure, ever. We just put that out there for anyone who finds value in what we do. Okay, back to car insurance. The first and most obvious lever is shopping around. Luna: But is that actually effective? I have heard that loyalty discounts can sometimes be better than switching. Lucas: It depends. A study from the Consumer Federation of America a few years ago found that loyal customers — people who stay with the same insurer for five years or more — pay on average 20 to 30 percent more than new customers. Insurers often raise rates incrementally on existing customers while offering steep discounts to attract new business. So switching every year or two can save you hundreds of dollars. Luna: That is a big gap. So even if your current insurer offers a loyalty discount, it might not be enough to offset the new-customer pricing. Lucas: Exactly. And the process is easier than ever. There are comparison sites that let you get quotes from multiple insurers in minutes. The key is to compare identical coverage limits and deductibles so you are comparing apples to apples. Luna: Raising your deductible is another lever, right? If you go from $500 to $1,000, you can often cut your premium by 10 to 20 percent. Lucas: That is a solid move if you have enough cash on hand to cover the higher deductible in case of an accident. The risk is that you might be tempted to avoid filing a small claim to keep premiums low, but that is actually smart behavior anyway — filing small claims can lead to surcharges that cost more than the claim itself. Luna: So the strategy is really about aligning your insurance with your actual risk tolerance and cash reserves. Lucas: Right. And then there is usage-based insurance — programs like Progressive's Snapshot or Allstate's Drivewise. They plug a device into your car or use your smartphone to monitor your driving habits. Good drivers can save 10 to 30 percent. But there is a trade-off: the insurer gets a lot of data about your behavior. Luna: Privacy is a concern for sure. But for someone who drives safely and rarely, the savings could be significant. Lucas: Absolutely. And if you are driving less — say you work from home now — you should also ask your insurer about low-mileage discounts. Some companies offer them automatically, but many require you to request it. Luna: It is worth checking your annual mileage estimate. If it is overestimated, you might be paying extra for miles you are not driving. Lucas: Great point. Another often-overlooked area is bundling. If you have homeowners or renters insurance with the same company, you can often save 10 to 15 percent on both policies. But again, compare the bundle price against standalone policies from different insurers — sometimes the bundle is not actually cheaper overall. Luna: So the takeaway is: don't set it and forget it. Insurance is something you need to review at least once a year, especially when inflation is pushing rates up across the board. Lucas: Exactly. And one final thing: consider dropping collision and comprehensive coverage on older cars that are not worth much. If your car is worth, say, $4,000 and your annual premium for those coverages is $800, you might be better off self-insuring that risk. The math changes when the car is paid off and its value is low. Luna: That is a good rule of thumb. So to sum up: shop around every renewal, raise deductibles if you have savings, ask about usage-based and low-mileage discounts, and drop coverage on older cars. Lucas: And keep an eye on those renewal notices. With the CPI for auto insurance still elevated, insurers are likely to keep raising rates through the rest of 2026. But by being proactive, you can keep your premium from quietly eating your budget. Luna: It is one of those areas where a little effort can save real money. Lucas: Absolutely. That is it for this episode of Inflation and Your Money. We will be back soon with another angle on how rising prices are affecting your daily life.