Putting Car Insurance Prices Into Perspective

As car insurers help their customers cope with the pandemic’s economic impact through premium refunds and other relief measures and some groups complain the efforts are insufficient and ask regulators to make insurers pay more, it’s worth noting that the cost of insuring motor vehicles  has grown more slowly than inflation over the past 12 months and well below prices for hospital services and car repairs – two key drivers of car insurance claims.

As the chart below shows, year-over-year increases in auto insurance prices have trailed growth in the Consumer Price Index, the most widely used measure of inflation. 

“Auto premiums are kept relatively low by competition among insurers,” explained Triple-I chief economist Steve Weisbart. “This has been happening even as two major contributors to claims have grown much faster. In the case of hospital services, prices have not just been rising – growth has been accelerating since last July.”

You read that right. Even as two of the biggest contributors to claims – the money insurers pay policyholders after accidents – have grown faster than inflation, the prices policyholders pay for coverage have grown more slowly than consumer prices generally.

Many factors come into play when an insurer determines an individual’s premium payment – age, driving record, where and how far one generally drives, and much more; and, let’s face it, no one likes to pay for insurance or to see their payments go up. 

But think about it: even though you might roll the dice if your state didn’t require you to have insurance, would that really be a wise move? Would you really want to be on the hook for the full cost of damage to your car or that of another driver? Or for the liability associated with someone’s injury or death?

That premium payment provides an awful lot of value in terms of peace of mind – IF you think about it.  And, if you think further about it, you have more control over how much you pay for car insurance than you do over other products and services.  You can shop around. You can change how much or what type of coverage you buy. You can bundle auto with other coverages. You can get fewer tickets and improve how you handle your credit.

And as usage-based insurance, powered by telematics, gains traction, your options will only increase.

Compare this with, say, cable and satellite TV. Your ability to shop around is quite limited (though improving with each new streaming opportunity that comes online). The products you really want come bundled with others you would never pay for if you had a choice.

And the prices of these services, as the chart below shows, continue to grow at rates well above both CPI and car insurance.