Biden's Sticky Inflation: Auto Insurance Rates Record Biggest Annual Jump Since 1976

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by Tyler Durden
Saturday, Apr 13, 2024 - 03:05 PM

Joe Biden's sticky inflation continues to ravage the working poor as Bidenomics falls flat on its face. The president's ally at the Federal Reserve, Jerome Powell, has yet to achieve the 2% inflation Fed target ahead of the November elections. 

As inflation heats up in the first quarter of this year, the cost of driving on American highways is seriously spiraling out of control. Auto insurance in the US increased more than 22% in the 12 months that ended in March, the largest annual increase since 1976, according to Bloomberg. 

The cost of owning and or driving a vehicle in the US is absolutely insane. From $1,000 monthly payments to ridiculous repair bills to the average price of gasoline inching closer to the politically sensitive level of $4 a gallon to, of course, skyrocketing auto insurance, the cost of driving is unbearable for some. For others, still near record high prices for used and new vehicles, plus the highest borrowing rates in a generation, continue to worsen the affordability crisis. 

For more clarity on what's driving auto insurance rates through the roof. Bloomberg's Keith Naughton explained why in five bullet points:

1. Cars are more expensive to fix: 

Today's cars are packed with high-tech gadgetry meant to entertain, comfort and protect occupants. The array of safety equipment now common on cars includes automatic emergency braking, blind-spot detection and lane departure warnings. To give drivers eyes in the back of their head, automotive engineers have embedded cameras, sonar and radar sensors from bumper to bumper. All that technology has driven up the cost of repairing even a minor fender bender.

For example, when Toyota Motor Corp. upgraded its Camry sedan in 2018, its front bumper went from having 18 parts to 43, including sensors for the advanced driver-assistance system that can control speed and lane position automatically as well as provide blind-spot warnings. As a result, it now costs 43% more to repair a Camry after a front-end collision, according to Mitchell International Inc., a researcher that provides data and software to insurance companies and car repair shops. The average repair bill for a car with a standard internal- combustion engine was $5,564 in 2023, according to auto insurance processing company CCC Intelligent Solutions.

2. Electric vehicles are even more expensive:

If your vehicle is battery powered, then the cost to repair it is 22.3% higher than for a traditional car, or $6,806 on average last year, according to the processing company. Even though EVs have fewer parts than internal combustion engine vehicles, they are more costly to fix for a variety of reasons, starting with that big battery underneath the floorboards. 

The battery is the most expensive component on an electric car — by far. It's also costly to handle during repairs. Because of the risk of battery fires, many manufacturers require that the massive lithium-ion battery be drained and disconnected before a repair. If the EV needs to be welded or taken through a hot paint bay, then the battery has to be removed entirely. The result: A battery-powered model takes nearly 50 days to repair, on average, 10 days longer than non-EVs, according to CCC Intelligent Solutions. 

Hertz Global Holdings Inc. cited repair costs for EVs that were twice as high as for traditional cars when it decided to drastically scale back its EV rental fleet last fall. EV repair costs will probably come down as battery-powered automobiles become more commonplace — they accounted for just 7.6% of US car sales last year — but that could take a while since mainstream consumers are passing on plug-in models for now because of high prices and a spotty charging infrastructure.

3. There are more crashes that are more severe 

Despite the additional safety equipment on cars to help drivers avoid crashes, US roads have become far more dangerous. And that's pushing up insurance rates to cover the costs of repairs and health care for those injured in crashes. Nearly 41,000 people died in US traffic crashes last year, up 13% from 2019, according to the National Highway Traffic Safety Administration.

That increase followed decades of declines in road fatalities, and it coincided with the rise of mobile phone use in cars. Americans look at their phones while driving at three times the rate of drivers in the UK, according to a study by Cambridge Mobile Telematics. Most cars these days are also outfitted with a tablet-like touchscreen in the dashboard to provide entertainment and navigation. In 2022 in the US, 3,808 people were killed and more than 289,000 were injured in crashes involving distracted driving, according to NHTSA. 

Paradoxically, all the high-tech safety equipment in new cars might be giving motorists a false sense of security. "People were concerned that there might be an incentive to be even more distracted while driving because you believe the technology will kick in when needed," said Stephen Crewdson, senior director of insurance business intelligence with researcher J.D. Power. "It looks like they were correct because we're seeing auto collisions are still happening as they did before, and the severity is going up."

4. There's a shortage of mechanics and car parts 

Pandemic-related shortages of parts and a long-running dearth of mechanics to bolt them onto cars has turbocharged repair costs and thus insurance premiums. Though there was an uptick in mechanics last year, there remains a chronic shortage: The industry needs as many as 800,000 more technicians to meet demand over the next five years, according to a study by TechForce Foundation, which tracks the business. 

Between 2020 and 2022, the number of graduates completing postsecondary programs in the auto sector fell by 20%. As the baby boomer-heavy profession loses thousands of mechanics to retirement each year, fewer young people are going into the profession that pays on average $49,690 annually, 20% below the national average wage, according to the US Bureau of Labor Statistics. 

EV mechanics are even harder to find. Pricey labor accounts for nearly half the cost of an EV repair, and it's the biggest factor in the disparity between the expense to fix an EV and a non-EV, according to CCC Intelligent Solutions. The price of car parts also skyrocketed as Covid shutdowns and the war in Ukraine disrupted global supply chains. The twin shortages of people and parts continue to drive up repair costs, which rose 3.1% month- over-month in the latest core consumer price index, the biggest jump since August 2022.

5. Insurance companies are playing catch-up 

During the early days of the pandemic, driving miles plummeted and accidents declined by so much that auto insurers refunded their policy holders billions of dollars during April and May of 2020. But the snapback was severe. First came the rising costs from the parts shortages, then the price of cars, also in short supply, shot up, and finally drivers returned to the roads with a vengeance. The resulting surge in crashes and claims left auto insurers with their worst underwriting results in decades. They found themselves upside down, with the cost of claims exceeding the premiums they were bringing in. 

So the insurance companies began aggressively increasing rates. The latest consumer price index data show rates rose by 2.6% in March, the biggest monthly advance since July 2020. Consumer advocates accuse the insurers of being too aggressive with their rate increases and point to the rising stock prices of the big insurance companies as proof. But since auto insurance is regulated by each US state, insurers have had to make a case for their increases based on the trends of rising claims, costs and accident rates. 

"A gas station can increase and decrease prices by the minute," Crewdson of J.D. Power said. "But an auto insurer has to justify their rate changes, so they are always behind the curve. They're still catching up." And that means rates will continue to rise.

For those who can no longer afford to drive and must take public transportation.

Remember this quote:

Perhaps WEF's dream is coming true after all.