Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / The Quiet Inflation of Your Insurance Premiums
Transcript
- Lucas: So I got my auto insurance renewal notice this week, and I had to read it twice. My premium is up nearly 18 percent from last year. And I haven't had a claim in five years. Luna: Eighteen percent? That's brutal. And I bet you're not alone. Lucas: Not at all. In fact, insurance is one of the stickiest inflation components right now. The April CPI report — released a few weeks ago — put the overall index at 332.4, up about 2.4 percent year-over-year. But motor vehicle insurance? That's running closer to 7 percent annually. Homeowners insurance is even higher in some states. Luna: So why is insurance outpacing everything else? I mean, we keep hearing that goods inflation is cooling, supply chains are normalizing. What gives? Lucas: Right, goods prices have moderated. But insurance is a different beast. The premium you pay is essentially a bet on future costs — repair costs, medical costs, legal costs. And those have not cooled off. Take auto repairs. New cars are packed with sensors and cameras. A minor fender bender that used to cost eight hundred dollars now runs two thousand because you have to recalibrate the radar and replace a bumper with embedded sensors. Luna: So the repair bill has inflated faster than the overall CPI. And insurers are just passing that through. Lucas: Exactly. And then there's the labor shortage in auto body shops. Skilled technicians are hard to find, so labor rates have climbed. Plus used car prices — they spiked during the pandemic and haven't fully come down. If your car is totaled, the insurer has to pay out more to replace it. All of that feeds into your premium. Luna: What about homeowners insurance? I've heard that's even worse in places like Florida and California. Lucas: Much worse. Catastrophe losses are the big driver there. We've had back to back years of billion-dollar wildfire and hurricane events. Reinsurers — the companies that insure the insurers — have jacked up their rates dramatically. In Florida, some carriers have stopped writing new policies altogether. The remaining ones are charging rates that are up 40 percent or more over two years. Luna: So it's not just your car — it's your house, your rental property, maybe even your business. This feels like a hidden tax on anyone who owns assets. Lucas: It really is. And because insurance is something you have to buy — either by law or by mortgage requirement — you can't just opt out. So it eats into your purchasing power just like rent or groceries do. But unlike groceries, you can't switch to a cheaper brand. You can, however, shop around. Luna: Does shopping around actually work? I've heard that loyalty doesn't pay anymore. Lucas: It's true. Many insurers have stopped offering loyalty discounts because they're trying to re-price their risk every year. So the same company that charged you a thousand dollars last year might quote you twelve hundred this year. But a competitor might quote you nine fifty because they want to grow market share. The key is to compare quotes at every renewal. I do it every twelve months like clockwork. Luna: And bundling — auto and home with the same carrier — does that still save money? Lucas: It can, but the savings have narrowed. Some carriers are actually unbundling discounts because they want to price each line separately. So you have to run the numbers both ways. Sometimes bundling saves you 10 percent. Sometimes you're better off splitting them. The point is, you can't assume anything anymore. Luna: So the inflation story here is really a structural one. It's not going to fade when the Fed cuts rates. It's about the underlying cost of repairs, labor, and catastrophe risk. Lucas: Exactly. And that's why I think insurance inflation is going to remain sticky even if overall CPI drifts lower. Core CPI ex food and energy was 335.4 in April, up from 334.17 the month before. That's still creeping up. And insurance is a big part of that services component. Luna: Speaking of the Fed — with the effective federal funds rate at 3.64 percent and holding, do you think higher insurance costs affect how the Fed thinks about inflation? Lucas: Indirectly, yes. The Fed looks at core PCE, which also includes insurance. But more importantly, if insurance premiums stay elevated, consumers feel squeezed even if gas and food prices level off. And that affects consumer confidence and spending. The Fed might see that as a reason to hold rates steady rather than cut. Luna: So it's another argument for a patient Fed. And speaking of patience — our listeners have been incredibly patient with us, and we really appreciate that. If these conversations have helped you think about your finances differently, there's a simple way to support the show and keep it ad-free. You can head to buy me a coffee dot com slash fexingo. No pressure at all — just a way for listeners who find value here to chip in. Lucas: Yeah, and it genuinely helps us keep doing what we do. Alright — back to insurance. One thing I want to mention is that some states are starting to regulate rate increases more aggressively. California's insurance commissioner recently proposed a rule that would require insurers to justify any increase over 7 percent. But the industry is pushing back, arguing that if they can't charge adequate rates, they'll just leave the market. Luna: So it's a tension between affordability and availability. If you cap rates, you might get fewer carriers and less competition, which could actually hurt consumers in the long run. Lucas: Right. And that's playing out in real time. The ten-year breakeven inflation rate, which is a market-based measure of expected inflation, is at 2.40 percent — basically unchanged. So the bond market doesn't see a big inflation surge ahead. But insurance premiums are a reminder that inflation isn't a single number. It's a collection of very different experiences. Luna: So the takeaway for listeners: don't just check your premium once a year. Check it, shop it, and if you can, raise your deductible to lower your monthly cost. Just make sure you have enough in your emergency fund to cover that higher deductible. Lucas: That's exactly right. And if you own a home, consider whether you need earthquake or flood coverage — especially as climate risks evolve. That's a separate conversation, but it ties into the same theme. Alright, thanks for listening, and we'll see you next time.