Auto Insurance Costs: Returning to Pre-Pandemic Norms or a New Normal?

Auto Insurance Rates: Not Soaring, But Returning to Normal

Auto insurance rates have been a topic of discussion amidst the broader conversation about rising inflation. However, it's important to clarify that these rates are not soaring but rather returning to pre-pandemic levels. According to the Bureau of Labor Statistics, consumer prices in April were 4.2 percent higher than a year ago, with auto insurance being one of the areas significantly impacting this increase. Specifically, auto insurance rates were 2.5 percent higher in April than in March and 6.1 percent higher than a year ago.

The Impact of Pandemic-Driven Changes

A year ago, in April 2020, insurers were returning billions of dollars to consumers due to the drastic change in driving patterns brought on by the pandemic. These givebacks, which eventually totaled $14 billion, drove down the price of insurance, and the official inflation numbers reflected that. Now, as driving patterns return to pre-pandemic norms, premiums are reflecting this new normal, which looks a lot like the old normal. The price of insurance, using BLS indices, is virtually unchanged from pre-pandemic levels – 0.01 percent higher than it was in March 2020.

A New Normal: Increased Risk and Higher Premiums

While driving patterns are returning to pre-pandemic norms, there are some notable differences. People are driving somewhat less than before, but they are driving faster and are much more likely to engage in distracting behaviors such as using their smartphones. This increased risk is reflected in higher premiums. For instance, a recent study by the National Safety Council found that distracted driving fatalities increased by 10 percent in 2020 compared to 2019. This data underscores the need for insurers to adjust premiums to reflect the increased risk on the roads.

In conclusion, while auto insurance rates are not skyrocketing, they are adjusting to reflect the new normal of increased risk on the roads. For consumers, it's important to shop around for the best rates and consider factors such as driving habits and the level of coverage needed to ensure they are getting the best value for their insurance dollar.