If You Thought The Worst of Inflation Was Over, Check Out Your Insurance Bill

Call it delayed-reaction inflation.

Just as price increases are cooling off for most products and services people buy, inflation is heating up for some of the bigger-ticket items in household budgets: auto and homeowners insurance policies.

The cost of auto insurance rose 18.1% over the year as of September, the Bureau of Labor Statistics said this month, down slightly from the 19.2% increase in August, which had been the highest since 1976.

Other measures of insurance costs also show large increases, with S&P Global Intelligence reporting an 11% annual jump in car 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. 

That’s a major hit to household budgets. The average homeowner’s policy costs $1,754 a year, while drivers aged 30-45 paid an average $1,638 in 2023 according to Policygenius data, so double-digit percentage increases can add hundreds to the tab.

Consumers are responding to auto insurance rate hikes by shopping around more for better deals, or by not insuring their vehicles, according to a September report by analytics firm J.D. Power—a risky option in most states, where insurance is required by law to drive. As of the second quarter, 5.7% of households had at least one vehicle said they didn’t have insurance, up from 5.3% in the second half of 2022, J.D. Power researchers said.

Dylan Barone, 34, an auto-body worker from Clifton, New Jersey said his Highpoint Insurance policy on two cars went to $470 a month from $350 a month when he renewed his policy this year, with no tickets or accidents.

“I don’t want to sound like, ‘Woe is me, 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 can figure out where I’m going to get this extra $120 a month.”

Insurance is getting costlier even as overall price increases are slowing down. U.S. consumers faced costs 3.7% higher over the 12 months ending in September for typical purchases according to the Consumer Price Index. That’s down from the peak of a 9.1% annual increase in June 2022. 

One reason for the delayed surge in prices: Insurance is regulated at the state level, and insurers have to jump through regulatory hoops to get rate increases approved. And jumping they are.

“Over the course of the past couple of years, where we’ve seen costs rising for everything else, essentially, insurance rates have not until very recently,” said Breanne Armstrong, director of insurance intelligence at JD Power. “It just takes a while for regulators to approve potential rate hikes.”

Indeed, rate-payers may only just be beginning to feel the financial pain, with lots of insurance rate hikes still in the pipeline. 

For example, Allstate has applied to raise its vehicle insurance rates by 35% in California, 29% in New Jersey, and 18.3% in New York, company executives said on an earnings call Thursday. The executives threatened to pull back on policies in those states if the hikes were not approved.

“We need action on those filings in the fourth quarter,” said Mario Rizzo, president of property-liability at Allstate. “And if we can’t, then we believe the right thing to do for the customers in the other 47 states as well as for our shareholders is to take additional action to get smaller across all three of those states. And that’s what we would do beginning next year if we can’t get resolution on the rate filings that are currently pending.”

Insurers say they’re passing their own rising costs to fix up and replace cars and houses on to consumers, and that without rate hikes, they’re losing money. State Farm, for instance, reported losing $13.4 billion on its insurance policies in 2022 in its annual report. Allstate said it’s dealing with the costs not only by raising premiums but by cutting back on advertising, an industry-wide trend.

It’s Not Just Inflation Driving Up Costs

The increased costs stem both from the rapid and widespread inflation of the past two years from causes specific to the insurance business.

The price surge for both homes and cars has driven up costs for insurers, said Scott Holeman director of media relations at the Insurance Information Institute, a trade group representing insurers. 

Not only that, but cars have gotten harder to fix for a variety of reasons. A labor shortage has driven up prices charged by repair shops, he said. Cars are increasingly loaded with safety devices such as collision avoidance sensors and more airbags, which make cars safer, but costlier to repair when they do crash.

Insurers have also noted an epidemic of reckless and intoxicated driving in the aftermath of the pandemic. On the homeowners’ insurance side, climate change is also a factor, with the increasing frequency and severity of natural disasters pushing up insurance costs in Florida and Louisiana, and forcing major insurers to pull out of California, where wildfires are making home ownership more hazardous.

Indeed, the extent of insurance premium increases varies widely by state. Florida homeowners had their premiums rise by 35% in 2023, while those in Vermont only rose 10% according to Policygenius. 

Insurance Rates Are High–So What Can You Do About It?

There are a few things that customers can do to push down their insurance bills, Holeman said.

One basic strategy is to shop around for a better rate.

“Insurance is still a very competitive industry. We encourage people to go out and shop for insurance…get at least three quotes a year,” Holeman said.

Policyholders can also switch to coverage with higher deductibles, reducing the premium while increasing their own costs in the event they have to make a claim.

Many insurers offer discounts for doing things to reduce risk, such as managing vegetation around your house in wildfire-prone areas, or for working from home, which reduces burglary risk. Some companies offer good grade discounts for student drivers.

“Ask what they can do to lower their rates. Ask for discounts that you might qualify for,” Holeman said. “Find out if you qualify for a good rate because different companies have different programs.”