Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Auto Insurance Industry
Transcript
- Lucas: You know, I was renewing my own auto insurance this week and the premium jumped nearly 18 percent. And I haven't had a ticket or a claim in years. Luna: Eighteen percent? That stings. Is that just your carrier being aggressive, or is that the market right now? Lucas: It's the market — broadly. Auto insurance rates are up about 15 to 20 percent year-over-year across the board, depending on your state. And the really interesting part is, insurers are still losing money on underwriting in many lines. Luna: Wait — they're hiking premiums that much and they're still losing money? How does that work? Lucas: So it's a classic stagflation squeeze. On the cost side: car repair costs are up because parts prices have jumped. Used car prices are still elevated — we talked about that a few episodes ago. Plus, medical costs from accidents are rising faster than general inflation. And then, on the claims frequency side, the JOLTS report out today showed job openings surged to 7.6 million, the highest in nearly two years. More people driving to work, more miles driven, more accidents. Luna: Right — more drivers on the road means more fender benders. So the volume of claims is up, and the cost per claim is up too. Lucas: Exactly. And we haven't even mentioned the Iran war's effect on energy costs, which filters into everything — from the price of the petroleum-based plastics in bumpers to the cost of shipping replacement parts. Luna: There was a headline last week that the average U.S. household is paying an extra 450 dollars on gas and energy because of the conflict. That's money that could have gone toward insurance premiums, but now it's going to the pump. Lucas: And so insurers are in a bind. They need to raise rates to keep up with loss costs, but they're afraid of driving away customers in a slow-growth economy. Real GDP growth is only 1.6 percent annualized. If you price too aggressively, you lose market share to a competitor who holds the line. Luna: But if you don't raise enough, your combined ratio blows past 100. I saw that State Farm's auto underwriting loss was something like 9 billion last year. Lucas: State Farm posted about a 9.2 billion underwriting loss in auto for 2025, yeah. And Allstate was also deep in the red. They've been playing catch-up with rate filings all year. Some state regulators are pushing back, saying increases are too steep. Luna: So there's a regulatory friction too. Some states like California require prior approval for rate hikes. Insurers have to justify every percentage point. Lucas: And that's partly why you're seeing some regional carriers pull out of states altogether. They can't get the rates they need, so they stop writing new policies. That reduces competition and actually puts more pressure on the remaining players. Luna: Which sounds like a perfect storm for higher premiums for everyone still in the market. Lucas: It is. And this is a really good place to mention something honestly. A fair number of listeners support this show through buy me a coffee dot com slash fexingo, and that's literally what makes it possible for us to dig into stories like this without any ads. Luna: Yeah, we don't have a giant sponsor bankrolling us. It's just people who find the economics useful chipping in a few bucks a month. It keeps the whole thing independent. Lucas: So if you've gotten any value out of these conversations, that's the link — buy me a coffee dot com slash fexingo. And now back to the insurance mess. Luna: Right — so if traditional insurers are struggling, what about the newer usage-based models? Like pay per mile insurance? Lucas: That's where it gets interesting. Companies like Metromile and Nationwide's SmartMiles charge you based on how much you actually drive. In theory, if you're working from home and barely driving, you pay way less. Luna: But in a stagflation environment, with people trying to save on gas by driving less, that could become a lot more attractive. Lucas: Exactly. And the data bears that out. Metromile reported a 30 percent increase in new policy quotes in the first quarter compared to last year. But there's a catch — those policies have lower premiums per customer, so the revenue per car is lower. It's a volume game. Luna: So they need a lot more customers to make up for the lower average premium. And in a slow-growth economy, customer acquisition costs might eat into that. Lucas: Right. And there's the data privacy angle too — some people don't want a telematics device tracking their every trip. But I think the bigger story is that the entire industry is being forced to rethink risk pricing. Luna: Because the old models — based on credit scores, age, zip code — they don't capture the inflation volatility we're seeing. Lucas: Exactly. Repair costs aren't moving with regular inflation. They're moving with parts inflation, labor inflation, and supply chain disruptions. So insurers that can dynamically update their rates based on real-time claims data have an edge. Luna: And those that are stuck with annual rate filings and static models are going to keep bleeding. Lucas: I think we'll start to see more consolidation. Larger carriers with better data analytics will acquire smaller ones that can't keep up. And some may exit auto entirely — like what we saw with some insurers pulling out of California homeowners insurance after wildfire losses. Luna: So for the average driver listening, what's the takeaway? Other than expecting higher premiums next renewal. Lucas: Shop around aggressively. Your current insurer may be behind on rate adjustments, or they may be ahead. Compare quotes from three to five companies. And consider usage-based insurance if your mileage has dropped. Also, raise your deductible if you can afford the out-of-pocket — that can cut your premium a lot. Luna: And for investors? Any plays here? Lucas: I'd watch the combined ratios closely. If you see a carrier consistently below 100 in auto, they've got a pricing edge. Also, look at insurers with strong reinsurance programs. And keep an eye on the telematics players — if premiums keep rising, more people will be willing to trade privacy for savings. Luna: It's a good reminder that stagflation doesn't just hit the obvious sectors like energy or groceries. It worms its way into every line item in your budget. Lucas: Even the one you pay so you can legally drive to work.