Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Your Insurance Premiums Are Rising Faster Than CPI
Transcript
- Lucas: Luna, I just got my auto insurance renewal notice, and I had to read the number twice. Luna: Let me guess — up double digits again? Lucas: Twenty-two percent. And my driving record is clean. I haven't filed a claim in years. Luna: That tracks with what CPI data is showing. In the May report — the most recent we have — motor vehicle insurance was up 19.9 percent year-over-year. That's nearly four times the headline inflation rate. Lucas: Right. And homeowners insurance isn't much better. That category rose about 15 percent over the same period. So what's driving this? Because it's not just 'inflation' writ large. Luna: It's a perfect storm. First, there's the repair cost side. If you get into an accident today, parts and labor are way more expensive than they were three years ago. Used car prices spiked during the pandemic and haven't fully normalized, so total loss payouts are higher. Lucas: And it's not just cars. Home replacement costs — lumber, roofing, labor — those are still elevated even if lumber futures have come down from 2021 peaks. So insurers are playing catch-up on loss costs that accumulated over the last few years. Luna: Then you have climate. 2025 was the most expensive year on record for natural disasters in the U.S., with over a hundred and fifty billion dollars in insured losses. Reinsurers — the companies that insure the insurers — have been hiking rates aggressively. That flows right down to your premium. Lucas: Lloyd's of London reported that global reinsurance rates rose by double digits again in January. So insurers are paying more for their own coverage, and they pass that cost to us. Luna: And the timing matters. The underwriting cycle — the period between when insurers set rates and when they realize losses — means we're still seeing rate increases from claims data from 2023 and 2024. It takes a while for the pricing to adjust. Lucas: So even if new claim frequency stabilizes, premiums will keep climbing for another year or two just to catch up. That's a problem because insurance isn't discretionary. You can't just stop buying car insurance if you drive. Luna: Exactly. And CPI weights insurance at roughly 2.5 percent of the average consumer's basket. But for someone in Florida or California, it's way more than that. So CPI understates the real hit for large parts of the country. Lucas: The Fed is watching this. They've kept the federal funds rate at 3.63 percent effective since June, with no cuts on the horizon. Persistent price increases in categories like insurance feed into core inflation and make it harder for them to declare victory. Luna: And the labor market is cooling — we added only 57,000 jobs in June — but that doesn't help insurance prices. Those are driven by loss costs and regulation, not wage growth. Lucas: So the consumer is stuck. Wages are growing maybe 4 percent annually, but a big chunk of that is being eaten up by a single line item that's rising five times faster. Luna: I've seen some people try to self-insure by raising deductibles. But that only works if you have savings to cover a big loss. For many households, that's not realistic. Lucas: Which brings up the broader point: inflation is not evenly distributed. CPI averages mask these pockets of pain. And insurance is one of the most painful right now because you can't substitute away from it. Luna: You can't buy generic car insurance. You can't delay insuring your home. It's not like switching from steak to chicken. Lucas: Right. And the worst part is, there's no obvious relief valve. Climate risk isn't going away. Repair costs are tied to labor shortages in construction and auto body. So this category may stay elevated for years. Luna: I wonder if regulators will eventually step in. Some states already limit rate increases, but that can backfire if insurers pull out of the market. We saw that in California and Florida with homeowners insurance. Lucas: That's the tension. Price controls might cap your premium today, but if no one will write policies in your zip code, you're stuck with a state-run insurer of last resort that often charges even more. Luna: So for now, the best advice is to shop around every renewal and consider bundling. But even that only shaves off maybe 10 percent when the base is going up 20. Lucas: Yeah, it's not a solution. It's damage control. And honestly, if this episode helped make sense of why your premiums are soaring, that's the kind of thing we hope listeners find valuable. Luna: And if it was worth the price of a coffee to you, there's a link — buy me a coffee dot com slash fexingo. Just a simple way to support the show and keep it ad-free. Lucas: No pressure. But we appreciate everyone who does. And speaking of ad-free, let's tie this back to something we mentioned earlier about the Fed. Luna: Sure — the Fed's focus on core services ex shelter, which includes insurance. That's running hot, and it's one reason they're hesitant to cut rates. Lucas: Exactly. Insurance is a big chunk of that supercore category. So when you see the Fed hold steady at 3.63 percent, part of the reason is that premium notices like mine are still landing on millions of doorsteps. Luna: And until that trend reverses, don't expect relief from your insurer — or from the central bank.