Rising insurance prices may be behind excessive inflation. Listen to Fed Chair Jerome Powell. Powell testified in Congress last week that rising house and car insurance rates are hindering the Fed's attempt to lower interest rates to 2%.
In recent years, “insurance of various kinds—housing insurance, automobile insurance, and things like that—has been a significant source of inflation,” he noted.
The Bureau of Labor Statistics reported on Tuesday that their car insurance statistic, which covers physical damage, liability, and other insurance for private passenger vehicles, rose 20.6% over the last year and 0.9% in February. S&P Global Market Intelligence found homeowners' insurance rose 11.3% in 2023. The BLS reported 3.2% inflation last month, slightly higher than predicted.
Experts blame climate change and increased car part prices for insurance rises. According to a Bankrate survey, insurance firms have raised costs due to climate change-induced catastrophic weather. According to the study, extreme weather has caused $1.1 trillion in damage to the U.S. in the past decade, the most ever. This has raised insurance premiums.
Reinsurance businesses assist insurers escape bankruptcy after catastrophic weather occurrences. Bankrate reports that reinsurance companies are charging insurance companies more due to the greater risk of bad weather that can damage houses, and insurers are passing on the costs to customers.
Insurance companies have even quit serving high-risk neighborhoods. “In the longer term, companies are withdrawing from writing insurance in some coastal areas,” Powell said. “It’s a significant issue.”
The Bureau of Labor Statistics reports that auto insurance prices are at a nearly 50-year high, due to bad weather, crime, and cars, Mark Hamrick, Bankrate's senior economic analyst, told Fortune. "The sharp rise in new car prices and complexity makes repair more complicated and expensive," Hamrick wrote in an email.
Motor vehicle maintenance and repair prices in U.S. cities rose 6.2% last month, exceeding inflation's 3.2% gain, according to BLS data released Tuesday.
Although rising interest rates are unavoidable, Hamrick said people should try to get a better bargain by changing or shopping around for coverage and factoring insurance prices when buying a car.
follow for more updates