Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Raise Is Finally Beating Auto Insurance Premiums
Transcript
- Lucas: So we've spent months now tracking how your raise is finally outrunning specific costs — rent, groceries, gas, car repairs, even pet care. And a lot of those stories have been pretty good news. But there's one expense that's been a stubborn exception: car insurance. Luna: Yeah, I feel that one in my own budget. My premium went up almost 15% last year, and I thought I was just unlucky. Lucas: You were far from alone. For the two years ending early 2025, auto insurance inflation was running at double digits — over 20% year-over-year at its peak. It was the single biggest contributor to services inflation in the CPI basket. But here's the shift: the May CPI data, released last week, shows auto insurance inflation has cooled to just 2.8% year-over-year. Luna: Wait — 2.8%? That's basically in line with pre-pandemic levels. What changed? Lucas: A bunch of things, but let me start with the big one: accident frequency dropped. During the pandemic, fewer miles driven meant fewer claims, but then as everyone got back on the road, claims spiked sharply. That's what drove those huge premium hikes in 2023 and 2024. Insurers were playing catch-up. Now, accident frequency has normalized — actually, it's slightly below pre-pandemic trends, partly because of safer cars and partly because of better driving data. Luna: Better driving data — you mean telematics? The little black boxes or phone apps that track your speed and braking? Lucas: Exactly. Telematics usage has exploded. About one in five auto insurance policies now has some usage-based component. That lets insurers price risk more accurately. Safe drivers aren't subsidizing risky drivers as much, which pulls down average premiums. And competition has been fierce — Geico, Progressive, State Farm have all been advertising rate cuts to win back customers. Luna: So my safer driving is finally paying off. But is the reprieve across the board, or are some drivers still getting hammered? Lucas: Great question. The aggregate number hides a lot of variation. If you have a clean record and you're willing to share driving data, you're probably seeing flat or even slightly lower premiums. But if you've had an accident, a ticket, or you live in a state with high litigation costs — looking at you, Florida and Louisiana — you're still seeing increases. Also, repair costs are still elevated. Replacement parts and labor are up about 6% year-over-year, so insurers' repair bills haven't come down. Luna: Right, so the claims cost per incident is still rising, just fewer incidents overall. That makes sense. So where does the wage angle fit in? Average hourly earnings were up 4.1% in May, according to the same CPI report. If insurance inflation is at 2.8%, then wages are finally beating it. Lucas: That's the headline. And it matters because for the last three years, auto insurance was one of the few categories where wage growth consistently lagged. In 2024, wages grew about 4% while auto insurance surged 22%. So your purchasing power for this specific item was getting crushed. Now it's flipped. A typical worker earning the private-sector average of $37.50 an hour is seeing their paycheck outrun their car insurance cost by about 1.3 percentage points. Luna: That's meaningful. And I think for a lot of listeners, this might be the first time they feel like inflation is actually, truly easing — because car insurance is one of those bills you can't avoid. It's not like you can skip it or switch to a cheaper brand overnight. Lucas: Right. And the trend is likely to continue. The 10-year breakeven inflation rate — that's the bond market's expectation for average inflation over the next decade — is sitting at 2.23%. That's basically right on the Fed's target. So if wage growth holds around 4%, workers should keep gaining ground on most categories, including insurance. Luna: I want to dig into one more thing: the role of state regulators. Because insurance is regulated at the state level, and some states have been pushing back hard on rate hikes. California's insurance commissioner, for example, was very public about rejecting proposed increases. Lucas: That's a real factor. State insurance departments have been under pressure from consumer groups to scrutinize rate filings. In 2025, several states required insurers to justify every basis point of increase. That slowed the pace of new rate approvals. And some insurers, rather than fight, decided to lean into telematics and usage-based pricing as a way to offer lower rates voluntarily. Luna: So it's a combination of lower claims, better data, more competition, and regulatory pressure. That's a pretty sturdy foundation for continued relief. But is there a risk that premiums could jump again? Lucas: Always. The biggest wildcard is extreme weather. If we have a string of major hurricanes or wildfires that cause billions in insured losses, that would ripple through reinsurance costs and eventually hit consumer premiums. Also, if repair cost inflation stays sticky — and it might, given supply chain constraints on certain microchips used in newer cars — that could push claims costs up. But for now, the trajectory is positive. Luna: And on that note — one thing we love about this show is that we get to unpack these trends with you every week. If walking through the economy with us has made something click, and you'd like to help us keep the conversations ad-free, listeners like you make that possible. You can support the show at buy me a coffee dot com slash fexingo. Lucas: And we really appreciate that. It's what lets us keep drilling into these numbers without worrying about sponsors. So, back to insurance — Luna, you mentioned getting a rate increase last year. Have you shopped around recently? Luna: I haven't, actually. And I should. I've been with the same insurer for five years. But I'm a little worried that switching will be a hassle. Lucas: It's less hassle than you think. And the savings can be significant. A recent study from the Consumer Federation of America found that drivers who shop around every two years save an average of $400 a year. And with telematics, you could save even more if you're a low-mileage driver. I'd recommend getting quotes from at least three insurers, and ask about usage-based programs. Luna: Alright, I'm convinced. I'll do that this weekend. So to wrap up: your raise is finally beating car insurance premiums. The key numbers are 4.1% wage growth versus 2.8% insurance inflation. That's a win for workers. Lucas: It is. But keep an eye on repair costs and extreme weather. And if you want the trend to continue, drive safely — it helps your wallet and your safety.