Key findings
- Premiums have jumped for home and auto insurance as companies pass on higher costs to their customers.
- The rate hikes echo last year’s blistering inflation, which pushed up the prices of homes, cars and repairs.
- Insurance companies have been slow to raise rates because they usually need approval from state regulators to raise premiums.
- Double-digit increases in auto and home insurance can add hundreds to monthly bills.
Call it laggard inflation.
Just as price increases are cooling for most products and services people buy, inflation is heating up for some of the more expensive items in household budgets: auto and homeowner’s insurance policies.
The cost of auto insurance rose 18.1 percent in the year to September, the Bureau of Labor Statistics reported this month, slightly less than the 19.2 percent increase in August that was the highest since 1976.
Other measures of insurance costs also show big increases, with S&P Global Intelligence reporting an 11 percent annual jump in auto insurance premiums as of August.
Protecting your home will also cost you: Homeowners’ insurance premiums jumped an average of 21% nationally in May 2023 from May 2022, when policyholders renewed their contracts, according to insurance data website Policygenius.
This is a big blow to household budgets. The average homeowner’s policy costs $1,754 a year, while drivers ages 30-45 paid an average of $1,638 in 2023, according to Policygenius data, so double-digit percentage increases could add hundreds to the tab.
Consumers are responding to rising auto insurance rates by shopping around for better deals or by not insuring their vehicles, according to a September report from analyst firm JD Power — a risky option in most states where insurance is required by law to drive. As of the second quarter, 5.7 percent of households had at least one vehicle they reported not having insurance for, up from 5.3 percent in the second half of 2022, JD Power researchers said.
Dylan Barone, 34, an auto mechanic from Clifton, N.J., said his Highpoint insurance policy for two cars went up to $470 a month from $350 a month when he renewed his policy this year, with no tickets or accidents.
“I don’t want it to sound like ‘woe, pity party,’ but I’m living paycheck to paycheck as it is,” he said. “It’s going to be like robbing Peter to pay Paul until I figure out where I’m going to get that extra $120 a month.”
Insurance is getting more expensive, even though overall price increases are slowing. U.S. consumers faced costs 3.7 percent higher in the 12 months ending in September for typical purchases, according to the Consumer Price Index. That’s down from a peak of 9.1% annual growth in June 2022.
One reason for the delayed price spike: Insurance is regulated at the state level, and insurers must jump through regulatory hoops to get approval for rate increases. And they jump.
“Over the last couple of years, when we’ve seen costs go up for everything else, basically insurance rates haven’t gone up until very recently,” said Brain Armstrong, director of insurance intelligence at JD Power. “It takes some time for regulators to approve potential rate hikes.”
Indeed, ratepayers are only now beginning to feel the financial pain, with many insurance rate hikes still in the works.
For example, Allstate has filed to raise its auto insurance rates by 35 percent in California, 29 percent in New Jersey and 18.3 percent in New York, company executives said on Thursday’s earnings call. Executives have threatened to withdraw the policies in those states if the increases are not approved.
“We need action on these documents in the fourth quarter,” said Mario Rizzo, Allstate’s president of property liability. “And if we can’t, then we believe the right thing to do for customers in the other 47 states, as well as for our shareholders, is to take additional steps to get smaller in all three states.” And that’s what we would do from early next year if we can’t get a decision on the rate filings that are currently pending.”
Insurers say they are passing on their own rising costs of repairing and replacing cars and houses to consumers, and that without a rate hike, they are losing money. State Farm, for example, reported in its annual report a $13.4 billion loss on its insurance policies in 2022. Allstate said it is tackling costs not only by raising premiums but also by cutting advertising, an industry-wide trend.
It’s not just inflation that drives up costs
The increased costs stem from both rapid and widespread inflation over the past two years for reasons specific to the insurance business.
Rising prices for both homes and cars have increased costs for insurers, said Scott Holman, director of media relations at the Insurance Information Institute, a trade group representing insurers.
Not only that, but cars have become more difficult to repair for a variety of reasons. Labor shortages have pushed up the prices charged by garages, he said. Cars are increasingly loaded with safety devices such as collision avoidance sensors and more airbags that make cars safer but more expensive to repair when they crash.
Insurers have also noted an epidemic of reckless drunken driving since the pandemic. On the homeowners insurance side, climate change is also a factor, with the increasing frequency and severity of natural disasters raising insurance costs in Florida and Louisiana and forcing major insurers to pull out of California, where wildfires are making homeownership more expensive. dangerous.
Indeed, the rate of insurance premium increases varies greatly by state. Homeowners’ premiums in Florida are set to rise 35% in 2023, while those in Vermont are up just 10%, according to Policygenius.
Insurance rates are high – so what can you do about it?
There are several things customers can do to lower their insurance bills, Holeman said.
One basic strategy is to shop around for a better price.
“Insurance is still a very competitive industry. We encourage people to go out and shop around for insurance…get at least three quotes a year,” Holleman said.
Policyholders can also switch to coverage with higher deductibles, reducing the premium while increasing their out-of-pocket costs in the event they need to make a claim.
Many insurers offer discounts for doing things to reduce risk, such as managing vegetation around your house in bushfire-prone areas or working from home, which reduces the risk of burglary. Some companies offer good discounts for student drivers.
“Ask what they can do to lower their rates. Ask about discounts you may qualify for,” Holleman said. “Find out if you qualify for a good rate because different companies have different programs.”