Hey! Donald Trump is right about something. Sort of:
Auto insurance has been getting steadily more expensive for a long time, but it's skyrocketed recently. Premiums have gone up by half over the past couple of years, and they're up by a third even after accounting for overall inflation.
I don't really know why. I've read a couple of explanations that left me no wiser than before, but apparently there's no fakery here. Even California's insurance commissioner, who's usually pretty tough on rate increases, approved a big one this year and said it was because payouts really had gone up.
So is this because of the great pandemic spree of bad driving? Are we still driving like lunatics? Why?
It would be nice for someone to do a study and find out just how much traffic enforcement saves us in reduced insurance costs, compared to how much tax is needed to pay the traffic cops. We know that greater intensity of traffic enforcement leads to less reckless driving and fewer accidents.
Absolutely.
This is one of my favorite concepts -- regulatory certainty. Like, when traffic is well regulated, there are fewer accidents and so fewer insurance payouts, and so lower insurance rates. Or deep-sea oil rigs, etc.
Good, well-enforced regulations save us money and are investments that provide a good return.
Competent government. It's worth fighting for.
I think there is something to this. A community near where I live announced that the cops were de-emphasizing traffic stops to focus on violent crime and domestic abuse. Great idea!
However, when I drive in that city, people are driving like lunatics and I have not seen someone pulled over for at least 3 years. Only time I see cops alongside a road is when they are standing next to yet another accident. A friend from that community wondered if the number of deaths saved from the new focus was counterbalanced by the number of deaths on the road (or pedestrians / bicyclists). Anyway, this is all hunch but I think there is a good research question in all of this.
If cameras are installed to catch speeders and red-light violators, then more traffic cops don't need to be paid. Not saying I approve of that, but just putting it out there.
In Tucson, AZ, the voters got rid of red light cameras. Both my wife and I were busted at one over the years prior to that, but I voted to keep them and would pay good money to bring them back.
Just one data point: the cops stopped citing traffic violations here about 4 years ago when they got mad that our DA prosecuted a cop for killing a kid who was running away [1]. Lest you think I am exaggerating, see:
https://www.sf.gov/data/percentage-citations-top-five-causes-collisions
Newspapers started asking questions about it this year, which is why we're back up to something like 5% of citations issued a decade ago.
Don't get me started on their refusal to enforce traffic laws when a bicycle is involved.
Our cops are sensitive little snowflakes, their feefees are very delicate and they hold long grudges at the institutional level.
[1] https://missionlocal.org/2020/11/da-files-homicide-charges-against-rookie-cop-who-shot-unarmed-suspect/
Poor driving encouraged by limited enforcement is my guess although my insurance is increasing in Canada due to increases in auto theft.
Agree that theft isn't likely to be a major new factor in the US. It is in Canada, reportedly because of what appear to be organized operations along the 401-416 corridors that ship through Montreal and can have stolen cars inside containers in the customs compounds almost before owners notice them missing.
Is there a good assessment of repair costs? It seems to me that repair costs have been skyrocketing in recent years.
Bingo!
All the self driving gear as well as lane alerts, back up and blind spot cameras, etc., are in the bumpers, windshields and side view mirrors. So a fender bender costs big bucks. Some manufacturers are designing their cars to cost less to repair--but the optimal position of the sensors would be near the corners, so....
Just came here to chime in with a similar comment. What's the impact on repair costs of the rise of EV and related technologies? Dollars to doughnuts these vehicles are more expensive to repair.
I doubt that the fraction of EV in the market is high enough to move the needle much. The only part of an EV that's more expensive is the battery. If that's intact, electric motors are much cheaper than IC engines + transmissions + radiators + all the other associated parts that you don't need with an EV.
"...If that's intact, ..."
The battery is easily damaged. And even if it looks okay why take any chances that it might be damaged if insurance is paying.
Just came here to chime in with a similar comment. What's the impact on repair costs of the rise of EV and related technologies?
If you aren't driving an electric car, the impact is zero. Insurance companies charge different rates to insure different vehicles, so, if electric cars are more expensive to repair, this will lead to electric cars being more expensive to insure, but not IC cars. If insurance rates overall are going up, the explanation can't be limited to a few makes and models.
Yep, this is the thing.
Fender bender with old-school bumper = get a new bumper.
Fender bender with a newfangled internal bumper, which contains a whole series of different sensors = get a new car
Bingo! We're driving supercomputers now, not fancy buggies.
I agree. This is just anecdotal, but yes, cars are much more easily damaged. In the sixties I drove a Chevy with a chromed iron bumper. When you hit another car at slow speed it just scratched the chrome, if that. I’ve had my car run into a few times in the last few decades and was amazed at the costs.
In the sixties you could open the hood and almost had room to climb in to do repairs. Now when you open the hood the engine compartment is totally packed. No room at all for anything to move.
Maybe it has something to do with air bags also? If you get in a minor crash you set off the airbags and those are fairly expensive to replace.
Back in the days of your Chevy collisions often resulted in cars having a scratch or two and people having concussions, broken bones, and fatal gashes or internal injuries. Today, collisions result in cars crumpling like tin cans and people just walking away. This is by design - crumple zones and the like - and I hope we can agree it's a good thing.
We can probably also agree that it's not driving the rise in car insurance. Collisions today result in larger car repair bills but smaller or nonexistent medical. Overall this is not just a moral improvement but also an economic savings.
Just one anecdotal bit of evidence. Heard about a Rivian being rear-ended, the owner thought they would just replace the rear bumper. Turns out the entire, one piece body needed replacing, for some $42,000 dollars.
Also, the sensors in your windshield for things like adaptive cruise control and collision warning cost a fortune to replace for even minor damage.
How much is caused by catalytic converter theft and peoole.stealing KIAs? Both were extremely common for a while and come with real repair expenses. Sometimes the KIAs just need a new window, but often they are trashed and/smashed.
+1
I'm curious what the insurance rates will be when the lower-cost (even with 100% tariffs) Chinese EVs flood the market. Assuming replacement parts are cheaper because they escape the highest tariff rates (because replacement parts for the NA market are manufactured within the USMCA rather than in China) and are also subsidized by the CCP, losses would be lower.
Here's a story (https://www.azfamily.com/2024/05/18/why-auto-insurance-premiums-will-continue-rising-2024/) mentioning a factor that you might find surprising: climate change.
What?
We know that property insurance losses in states vulnerable to climate change (floods, storms, wildfires) are climbing to the point where some insurers are leaving those markets altogether. But those same disasters also affect auto insurance payouts, because vehicles are also destroyed or damaged in those events.
Yes. Never buy a used car from Florida, salt water is bad. Of course, if we get rid of NOAA via Project 2025, we won't have to worry our empty little heads about hurricanes any more.
All of which points to the reality that "insurance" is a profit centered enterprise. It's gambling on the bad and unexpected. Shareholders and execs make huge amounts of money by speculating who will or won't have an incident and how much they can constrain the payout if one happens.
It would be nice to have insurance that isn't focused on profit and but on making people whole through a managed pool of contributed dollars. You still have to balance the books, just without the overhead and quarterly profit expectations.
But pedestrian deaths are still a mystery, eh?
+100
Juries tend to be very generous with personal injury awards. I don't know if they've become more generous of recent years.
In the last four years I've seen a substantial increase in accident attorney law firm ads. Television, busses, billboards, radio.
Maybe they are getting more business, and getting the insurance companies to settle for more than they otherwise would do.
I'd bet on it mostly being an indirect result of increased car prices and potentially increased costs of medical bills+litigation. Basing this on the assumption that insurance rates are roughly (1+ overhead + profit margin) * expected damages (including damage to the car and from the car on cars, people, and property, plus any other liabilities).
This 2023 report from Standard+Poor's generally suggests rate increases are an aggressive response to maintain profits amid inflation and natural disasters. Other reports mention high rates of accidents https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-private-auto-insurers-break-premium-loss-ratio-records-in-q1-76310318
The insurance graph you show generally matches the inflation adjusted cost of cars since 2008 https://fred.stlouisfed.org/series/CUSR0000SETA0
While overall medical inflation's been low, medical damages + cost of litigation may have increased at different rates than car costs. As other commenters mention, car repairs could be a big factor, but that's probably closely correlated with car costs, which I'd expect are easier to measure.
Other possibilities include people becoming less safe drivers, or the classic bullet holes in plane selection bias scenario where improved car safety features cause more people to survive crashes with severe and costly injuries. Or this could also all just be increased profit/inefficiencies in the insurance market/monopolistic behaviors. Hard to say without more data.
So the simplest explanation, providing the insurance industry some benefit of the doubt, is that as car prices went up everything associated with them went up too.
Whoops, the Fred link broke
https://fred.stlouisfed.org/series/CUSR0000SETA01
For insurance rates the used car price graph might be more useful: https://fred.stlouisfed.org/series/CUSR0000SETA02
It shows a very similar pattern though.
Good point. That graph recently looks more like a leading indicator for insurance prices too. Maybe a combination of new and used to approximate the value of all cars on the road would be best.
Insurance rates have also (somewhat unevenly), skyrocketed here in Germany. We ended up changing insurers as a result. I think it is a question of repair costs, perhaps driven by energy and material costs as well as labour costs (there is a shortage of skilled workers here, that is only going to get worse - particularly with the technology being seen as a dead end).
I have a strong suspicion that repair costs are driving this mostly, due to the technological complexity of modern cars.
Recently my neighbor clipped the front left side of my Mazda parked on the street when he was backing out of his driveway. It was very minor damage, but it did crack the headlight and muck up my headlight’s alignment, which requires electronic re-calibration. The cost to replace the front left fender and headlight and recalibrate the electronics? $6000, and way over half of that cost just for the headlight. That’s 20% of the way to buying a new car!
HA! I can top that. Mice ate at the wiring harness of our 2017 Chevy Volt. [The insulation covers for the wiring are made from soy based materials]. The ENTIRE harness had to be replaced. Took the dealer almost a month to do the work. Cost to us $250 deductible. Cost to insurance carrier: $10K $10K!!!
I now spray a solution of peppermint oil onto the wiring harness about once a month. So far, so good.
Just had the same problem on my 2019 Civic. Fortunately it was only $1000 to fix. Also doing the peppermint oil treatment.
The price of replacement parts is much higher in the past few years. Also, the repair paradigm has changed. Even a minor dent is fixed by replacing the entire fender, including full a paint job. This makes a lot more money for the body shop than bumping the dent out and touching the paint up. It is a mystery to me why the insurance companies put up with this. I guess maybe because they can pass along the costs to their customers?
Not just price but availability too. A friend's insurer paid for a rental car for half a year waiting for a body panel then decided to write off the entire car.
One of the effects of the pandemic and the subsequent labor shortages is that people have become used to the idea of lax enforcement of traffic and parking regulations. I certainly see that where I live (DC area). People are increasingly speeding and running red lights with impunity and parking restrictions are being ignored.
See for example this piece from this morning's Wapo:
A 12-year-old girl was hit by a car. It had $19,770 in unpaid tickets.
https://www.washingtonpost.com/dc-md-va/2024/09/17/dc-child-struck-driver-tickets/
It's not so much that we're paying for crazy driving and more like we're paying to keep handing money to lawyers. I moved from NY to CA in 1989, with a clean driving record, and my insurance rates instantly doubled. Why? Because NY is a no-fault state. But the voters in CA like to entertain the fantasy that they'll be involved in a horrific accident, will sue, and will become wealthy. Of course, about 1/3 of the settlement goes to the lawyer, who typically does almost no work since most suits are settled according to a multiplier formula. (Actual medical bills X 3, for example, to account for pain and suffering.) And the lawyers make sure to pad the medical bills by sending the client to every specialist on the planet, just to increase the final settlement. So at least 1/3 to 1/2 of every auto accident lawsuit is just plain wasted. No-fault takes care of all that.
Just now "Spectrum News", which comes unasked-for on my cable system, did a report on this very topic, so -- alerted by Kevin's post -- I watched to find out their explanation of "Why Insurance Rates Are Up". And their answer -- citing the experts! -- is: "the prices of cars are up, the prices of car parts also up."
Glad they cleared that up for us.