Latest / Inflation Explained with Fexingo: CPI, Prices, and the Cost of Living for Everyday People / Why Your Car Insurance Is Rising Faster Than CPI
Transcript
- Lucas: So you get your auto insurance renewal in the mail, and it's up — like, noticeably up. Maybe 15, 20 percent more than last year. And you're thinking, 'Inflation's cooling, right? The CPI said 3.2 percent. Why is my insurance going up three times that?' Luna: I literally had that conversation with a friend yesterday. She drives a 2022 Honda, no accidents, and her premium jumped 18 percent. Lucas: It's a real disconnect. And the data backs it up. The April CPI report — released about a month ago — showed auto insurance up 11 percent year-over-year. That's more than triple the headline inflation rate. And it's not just one month. It's been running hot for over a year. Luna: So what's driving it? Is it just insurers being greedy? Lucas: Part of it is catch-up pricing. During the pandemic, insurers actually gave money back — they issued premium credits because people were driving less. But now we're back to normal driving patterns, plus some new factors. One big one: repair costs. Modern cars are loaded with sensors, cameras, aluminum body panels. A fender bender that used to cost a thousand bucks can now run four or five thousand. Luna: Right, because you can't just bang out a dent anymore. You have to replace the whole sensor array. Lucas: Exactly. And parts supply chains are still tight. The data we just got this week from the job market — 7.6 million job openings in April, highest in nearly two years — that tells you the economy is running hot. More people working, more commuting, more miles driven. That means more accidents. And with repair costs elevated, insurers have to raise rates just to keep up with claims. Luna: Plus there's the distracted driving angle. Traffic fatality data spiked during the pandemic and has stayed high. More people on their phones, more crashes. Lucas: Yeah, the National Highway Traffic Safety Administration data shows fatalities are still above pre-pandemic levels. So insurers are modeling higher claim frequency and severity. That flows straight into your premium. Luna: And this is interesting — the Fed's rate policy plays in too, right? Because insurers hold a lot of bonds. When rates were near zero, they were getting almost no investment income. Now with the fed funds rate at 3.63 percent, they're getting better returns on their bond portfolios. But they're still raising rates. Lucas: That's the counterintuitive part. You'd think higher investment income would let them keep premiums lower. But the reality is, the underwriting side — the claims — has gotten so much worse that even with decent investment returns, they need to push rates up. Some of the big mutual insurers, like State Farm and Allstate, have been posting underwriting losses in auto for several years. They're playing catch-up. Luna: So when does it peak? Are we stuck with double-digit insurance inflation for another year? Lucas: The good news is, the rate of increase has started to slow. Auto insurance CPI peaked around 12 percent year-over-year late last year. Now it's 11 percent. But it's still sticky. Part of that is because regulators have to approve rate changes, so there's a lag. Insurers filed for increases last year that are just now hitting consumers. I think we'll see it drift down toward 5 or 6 percent by the end of this year, but it won't drop to zero. Luna: And for the listener getting that renewal letter, is there anything they can do besides shop around? Lucas: Shopping around is actually the number one move. The same driver can get wildly different quotes. You can also raise your deductible, drop comprehensive on an older car, or see if you qualify for usage-based insurance — where a device or app tracks your driving. If you drive safely, you can save up to 30 percent. Luna: I've heard those apps can feel a bit Big Brother, though. Lucas: Fair point. But the trade-off is real savings. And if you're a low-mileage driver, it's almost a no-brainer. The key is to treat insurance like any other subscription — review it every year. Luna: You know, this episode reminded me that inflation isn't one number. It's a basket, and your personal basket might look very different from the official CPI. For a lot of people, car insurance is a bigger chunk of their budget than, say, streaming services. Lucas: Absolutely. And that's why we do this show — to unpack those specific line items. If today helped you understand why your insurance bill is climbing, honestly, that's the kind of thing that makes running this podcast worthwhile. And if it was worth a coffee to you, well, you can find us at buy me a coffee dot com slash fexingo. Totally optional, but listener support is what keeps this show ad-free and focused on what matters. Luna: Yeah, every little bit helps us keep digging into these stories. It's a small way to say this stuff matters to you. Lucas: So back to insurance — one more thing I think is worth watching. The PCE price index, which is the Fed's preferred measure, actually weights insurance differently than CPI. PCE has been running a bit cooler, but even there, insurance is outstripping overall services inflation. So if you're the Fed, you're watching this category for signs that it's feeding into broader expectations. Luna: Meaning if people see their insurance going up 11 percent, they might start expecting high inflation generally, and that becomes self-fulfilling. Lucas: Exactly. The Fed's job is to anchor those expectations. And with the 10-year breakeven inflation rate at 2.38 percent, just a hair above the Fed's target, they're in a decent spot. But sticky categories like insurance keep them from declaring victory. The next CPI print is due next week, and I'll be watching the insurance sub-index closely. Luna: And we'll be here to break it down. Thanks for listening.