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Crime, Inflation Driving Up Auto Insurance Costs For Average Americans

  • The cost of auto insurance has skyrocketed following the COVID-19 pandemic, making cars even more unaffordable for average Americans.
  • Factors like crime and traffic accidents are driving up the number of claims filed, while inflation raises the cost of cars and associated repairs, leaving insurance companies to raise premiums to meet expenses.
  • “The U.S. personal auto insurance market is being hit hard in this inflationary environment,” Scott Holeman, the director of media relations at the Insurance Information Institute, told the Daily Caller News Foundation. “In addition to inflation, we’re seeing a dramatic increase in accidents on American roadways.”

Auto insurance costs have surged in 2023, with companies raising rates to account for increased costs related to more accidents, higher incidents of theft and higher car prices and repair costs.

August saw a 19.1% increase year-over-year in the average cost for motor vehicle insurance in U.S. cities, after seeing an 8.7% increase for the year in August 2022, indicating a trend of climbing rates, according to the Bureau of Labor Statistics. Driving up prices for auto insurance premiums are increasingly expensive car and car repair costs, lingering inflation from the broader economy and higher frequencies of insurance claims due to crime and vehicle crashes, according to experts who spoke to the Daily Caller News Foundation.

“The U.S. personal auto insurance market is being hit hard in this inflationary environment,” Scott Holeman, the director of media relations at the Insurance Information Institute, told the DCNF. “In addition to inflation, we’re seeing a dramatic increase in accidents on American roadways. Nearly all the largest U.S. personal auto insurers reported poor financial results in the second quarter of 2022. Several factors are driving negative economic performance with insurers.”

The rise in auto insurance costs comes as half of American consumers are being priced out of the car market due to the costs of cars rising to the level where the average monthly payment for both a used car loan, $528 per month, and a new car loan, $729 per month, exceeds the amount an average American can afford on a car loan payment, $443 per month.

Motor vehicle maintenance and repair costs have also seen a rise recently, peaking at a 14.2% increase year-over-year in January 2023 and receding to around a 12% increase for the year in August, according to the Federal Reserve Bank of St. Louis. The increase in January was the greatest increase since January 1975, when costs rose 15.7% in the metric.

As a result of heightened inflation, increasing car and car repair prices and more costly and increasing claims, insurers have increased premiums to account for a higher loss ratio, meaning the percentage of each dollar paid on a premium that insurers spend on a claim, which averaged 64.7% before the COVID-19 pandemic and has risen to 78.2% as of the first quarter of 2023, according to S&P Global.

Motor vehicle deaths, indicating a greater number of crashes or more severe crashes, have remained elevated since 2021, with a preliminary estimate from the first six months of 2023 reporting 21,130 motor vehicle deaths, according to the National Center for Health Statistics. In contrast, motor vehicle deaths stayed in a range of 16,470 and 19,100 between 2009 and 2020 in the first half of the year.

“Auto insurance premiums are ultimately based on the likelihood of paying a claim and the amount of the claim,” E.J. Antoni, a research fellow at the Heritage Foundation’s Grover M. Hermann Center for the Federal Budget, told the DCNF. “Because the prices of vehicles, vehicle parts, and vehicle repair have risen so much faster than the overall CPI, auto insurance premiums have likewise skyrocketed. However, the likelihood of paying a claim has also increased in the last several years too. That is attributable to lawlessness in many American cities where crime has notably increased, including crimes involving vehicles.”

Motor vehicle thefts among the cities that reported data in this metric jumped 33.5% for the first half of 2023 compared to the same time frame in 2022, with 2023 being 104.3% higher than 2019, according to the Council on Criminal Justice (CCJ). Rochester saw the biggest increase, rising 355% from the first half of 2022 to 2023, and in that same time period, Cincinnati and Buffalo jumped 162% and 134%, respectively.

Chicago, which had a 130% increase in motor vehicle theft in the first half of 2023 compared to 2022, sued the car manufacturers Kia and Hyundai in August, alleging that the companies had made the cars too easy to steal by not equipping vehicles with engine immobilizers and steering wheel locks that make hotwiring more difficult. Cars manufactured by Kia and Hyundai accounted for 54.3% of all stolen vehicles in the city in July 2023.

“We are also seeing an upward trend in auto theft due to a variety of factors,” Holeman told the DCNF. “The latest data shows that car theft is at its highest rate since 2008. In 2020, more than 810,000 vehicles were stolen; the average loss per theft was $9,166. There have also been increased comprehensive insurance claims from catalytic converter thefts. While those replacement costs alone may be relatively inexpensive, often vehicles are significantly damaged in the theft process.”

Harvey Rosenfield, founder of the nonpartisan nonprofit public interest group Consumer Watchdog, prescribed a different driving force to the rise in auto insurance prices, arguing instead that insurance companies were raising prices to account for previous losses that the companies accumulated.

“I think the insurance industry nationwide is raising auto and home insurance premiums to unfair and unjustified levels because they ran into trouble with their investments in the stock market over the last couple of years,” Rosenfield told the DCNF. “And this is how they offset their financial losses, by raising rates and scapegoating other excuses rather than take responsibility for the fact that they’re just trying to offset their financial losses.”

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