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Why has car and home insurance become so expensive?

(NewsNation) — Inflation remains a persistent problem, and surging insurance rates are one of the reasons why.

Car insurance prices are up more than 22% over the past year, according to the latest Consumer Price Index (CPI). Renters insurance is also up 4.6% year over year, outpacing the overall inflation rate of 3.5%.

Homeowners insurance isn’t factored into the CPI, but insurance brokerage Policygenius determined those costs rose more than 20% from 2022 to 2023.

In Florida, where home insurance premiums have skyrocketed, some annual policies now cost over six figures.

Mark Friedlander, director of corporate communications at the Insurance Information Institute, says the national rise in insurance costs is not because companies are squeezing consumers.

“The premiums are not keeping up with the loss cost, it’s still, in both the home and auto sectors, well above what is being collected in premiums,” he said.

Instead, Friedlander said the recent uptick is due to a combination of extreme weather, costlier repairs, more accidents with significant damage and higher reinsurance costs.

Car Insurance

Price compared to a year ago: +22.2%, per the CPI

Avg. cost (Apr. 2024): $2,314 per year for full coverage, $193 per month, according to Bankrate

Largest premium change by state (2023 to 2024): Missouri (+44%), Colorado (+37%), Nevada (+28%), Michigan (+25%), Florida (+24%), per Bankrate

Why are costs higher?

  • Repairs are more expensive: New high-tech features have made fixes more costly, helping push the average collision claim up nearly 60% since 2020.
  • Accidents are causing more damage: Safety improvements have made cars more likely to absorb damage in a crash, but that fragility means even minor accidents can lead to expensive repairs.
  • Driving became more dangerous during the pandemic: Nearly 43,000 people died in U.S. traffic crashes in 2021, the highest number in 16 years.
  • Labor and supply shortages: Supply chain disruptions and higher labor costs have also driven up repair costs.

Where do we go from here?

Price hikes are likely to continue in 2024 but at a slower pace than in recent years. Insurify estimates car insurance costs will go up by 7% this year.

Homeowners Insurance

Price change from 2022 to 2023: +21%, according to Policygenius

Avg. cost (National): $1,754 per year, $146 per month, according to Policygenius

States with the highest increases (2021 to 2023): Florida (+68%), New Mexico (+47%), Colorado (+46%), Idaho (46%), Texas (+46%), per Policygenius

Why are costs higher?

  • Extreme weather: In 2023, the U.S. experienced a record 28 separate billion-dollar weather and climate disasters. Last year, severe thunderstorms alone led to more than $60 billion in losses across the U.S., the highest level ever, Friedlander said.
  • Reinsurance rates are up: Insurance companies pay for their own insurance to protect themselves, and those costs are up by as much as 50% this year.
    • “When your insurance company pays more for reinsurance, that’s a pass-along cost to consumers,” Friedlander said, noting that those effects may not show up in prices right away.
  • Inflation: Residential building and construction labor costs have risen in recent years, pushing insurers to raise premiums.
  • A recent Bloomberg Intelligence analysis found that including homeowners insurance in the inflation data could have added about 0.8% to last year’s CPI increase of 3.4%.

Where do we go from here?

Insurify projects a 6% increase in 2024, which would place rates at $2,522 by the end of the year, the company said in a recent report.

Renters Insurance

Price compared to a year ago: +4.6%

Avg. cost (National): $148 per year, $12 per month, according to NerdWallet

Most expensive states (2024): Louisiana ($253 per year), Mississippi ($252 per year), Arkansas ($225 per year), Oklahoma ($210 per year), Georgia ($194 per year), per NerdWallet

Why are costs higher?

  • Like other types of insurance, as prices for all items rise, so does the cost to insure them.
  • “More landlords than ever before are requiring it in lease agreements, so we’re seeing definitely an uptick in the volume of renters insurance versus past years,” Friedlander pointed out.

Where do we go from here?

Renters insurance has risen at a slower rate than car and home insurance in recent years and remains relatively affordable by comparison. For that reason, Friedlander recommends it as a good way to protect your personal property, which is not covered by your landlord’s insurance policy.

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