Beyond Inflation, Blame Bad Driving for Higher Car Insurance Costs

If you want to understand those recent increases in your car insurance premiums, blame more than just the inflation that’s made car repairs and just about everything else more expensive. 

The other culprit is bad driving, a House subcommittee heard Thursday.

“The pandemic seems to have had a significant impact on driving behavior, with increased traffic fatalities and increased insurance claim severity,” Baird Webel, a Congressional Research Office specialist in financial economics, told members of the House Financial Services Committee at a hearing about the high cost of insurance.

Premiums for car insurance have spiked 19% over the last 12 months, two to four times as much as was typical before the pandemic. Even the price of homeowners insurance, very vulnerable to increases in its own right, isn't going up as quickly, Webel testified. 

Why? Although the pandemic kept more people off the road, the number of deaths rose, increasing the size of claims from accidents, according to Webel. 

After three years of declines, annual fatalities from auto accidents surged in 2020 and 2021, rising 18% to almost 43,000, according to data from the National Highway Traffic Safety Administration. The pace has fallen slightly from those elevated levels but is still running above pre-pandemic levels, the data shows.

Add to that the rising cost of replacing and repairing used cars, and insurers have seen their average claim payments rise even as the number of claims has fallen, research cited by Webel shows. Inflation has been particularly acute for cars because the pandemic created shortages of the computer chips used in making them.

“The supply chain issues involving computer chips had an unexpected impact on new car supply due,” Webel testified. “This resulted in higher costs for used cars and car repairs that fed back into auto insurance rates.”

Prices for used cars spiked as much as 55% during the pandemic and are still 36% higher than they were before COVID-19, according to the government’s Consumer Price Index. 

The hearing also addressed recent spikes in home insurance prices as well as the challenge of obtaining coverage in some states. 

Insurance executives pointed to the high cost of rebuilding homes and an increase in people living along coastlines and in regions prone to wildfires and other extreme weather.

How they handle the risks of this extreme weather will be the subject of an investigation by the Senate Budget Committee, Democrats on the committee announced earlier this week.