Inflation stress: Higher car and homeowners insurance premiums add to Americans' economic angst

Insurance costs — for both car and homeowners coverage — are up significantly across the country adding to Americans' financial stresses since the pandemic and ensuing inflation wave.

New inflation numbers released in August by the U.S. Bureau of Labor Statistics showed the price of car insurance is up 18.5% compared to a year ago and 75% since the COVID-19 pandemic in 2020. That compares to overall U.S. prices being up 23% since the pandemic, according to BLS.

Homeowners insurance premiums have also increased.

In 2019 (before the pandemic and its economic upheavals and resets), the average homeowners insurance premium in the U.S. was $1,272 — now it is $2,511, according to consulting firm CAPCO.com and Marketwatch.com

That's a 97% increase.

Homeowners insurance prices are even higher in some states. Some are eye popping.

The average homeowners insurance premium with $300,000 in dwelling coverages averages $5,531 annually in Florida — 144% higher than the national average for the same coverage ($2,270), according to financial firm Bankrate LLC.

In Nebraska, which has seen premiums rise amid increased claims from hail and wind storms as well as inflationary price pressures, the average premium is $5,655, according to Bankrate. That is 149% higher than the U.S. average.

In Montana, automobile insurance averages $2,307 per year and homeowners insurance $2,584 annually, according to Bankrate.

Also driving up premiums were significant damages from hurricanes and tropical storms — which have grown stronger and more destructive in recent years with warmer water temperatures in the Gulf of Mexico and Atlantic Ocean. A number of private insurers have pulled out of the Florida market or gone out of business after big storms, which has increased the public's reliance on the state-run Citizens Property Insurance Corp.

A growing number of residential property owners are bypassing homeowners insurance with that number increasing from 5% in 2019 to currently 12% nationally, according to Mark Friedlander, director of corporate communications with the Insurance Information Institute, an industry group.

Friedlander said 15% of homeowners in Florida, which has a significant number of cash buyers — have eschewed insurance.

"Florida has always run higher," he said.

Homeowners insurance premiums have also increased in other hurricane- and tornado-prone states such as Texas, Louisiana, Oklahoma and Kansas with warmer gulf waters helping spark more and bigger storms. Areas prone to wildfires have also seen some insurance hikes.

Earlier this year, Insurance firm Insurify projected homeowners insurance premiums to go up by 10% in Montana, 23% in Louisiana, 10% in North Carolina and 13% in Utah his year after previous national post-pandemic price hikes.

Premiums, record profits

Auto insurance premiums are also up across the country since the post-pandemic spike in prices.

In 2019, annual car insurance premiums averaged $1,470, according to a market analysis by insurance portal TheZebra.com. Now, they average $2,329 nationally — a 58% increase.

Some states have seen even bigger increases and higher prices.

Average car insurance premiums average more than $3,000 per month in New York, Florida, Louisiana, Nevada and Michigan, according to Bankrate.

Premiums for automobile insurance are up 29% in Wisconsin, 42% in Maryland, 54% in Washington state, 33% in Tennessee, 44% in Delaware and 31% in Montana, according to TheZebra.com.

Premium increases come as the insurance industry reaps some big profits.

The American Association for Justice — which represents trial attorneys — points to data from the National Association of Insurance Commissioners showing property and casualty insurance companies made a record $87.6 billion in profits in 2023 — up 126% from 2022.

In the first quarter of 2024, underwriting improvements helped the U.S. insurance industry earn $39.9 billion in profits up from $7.9 billion in the first quarter of 2023 — a 408% increase, according to the Insurance Journal and an AM Best Special Report.

Inflation and climate

So, what is driving the rise in insurance premiums?

R.E. Hawley, a writer with Bankrate's research team, said wider inflationary trends and higher costs to repair homes and cars are helping drive premiums higher.

The average price of a new car is $48,644 — up 32% since 2019, according to Cox Automotive and TheZebra.com insurance information group.

Used car prices are up 27% since 2019, according to the two groups, with the average price of a used vehicle sitting at more than $25,200.

More expensive cars have more expensive parts and higher costs related to repairs and mechanic labor, which affects both consumers and insurance companies paying accident and other damage claims.

"Rates are going up in every state. It's been going up for a few years," Hawley said.

Hawley also pointed to more extreme weather events that cause more financial and property damage — which increase insurance claims and costs and, in turn, premiums.

"We're seeing increased wildfires in certain areas. We're seeing a lot of severe weather in areas that are not traditionally high risk," said Hawley, who also pointed to more severe hurricanes and tropical storms.

Since 2019, the U.S. has seen 121 natural and weather disaster with a damages price tag of $1 billion or more. These disasters cost an estimated $667 billion, according to the U.S. National Centers for Environmental Information.

The warmer waters in the Gulf of Mexico are not only percolating bigger and badder hurricanes, they are also part of the climate dynamics fostering more tornados and other storms in the Midwestern and Plains states.

Hawley said some states have seen increases in insurance fraud and there have been contemporary and post-pandemic increases in distracted and dangerous driving contributing to higher insurance premiums.

"There's been an increase in risky driving," she said.

Higher replacement, repair costs

Friedlander said higher costs of natural disasters have conspired with inflation — including higher repair and replacement costs — to drive up costs for insurers, and in turn, premiums.

He said worker shortages in construction and repair businesses have resulted in higher labor costs, which also put upward pressures on insurers. "Legal system abuse" also contributes to higher insurance costs via lawsuits and litigation, he added.

Friedlander said replacement costs — such as materials and parts — shot up 55% during the post-COVID inflation wave — four times the inflation rate.

He also said more people are living in the paths of potential extreme weather events and natural disasters, pointing to population growth in hurricane-prone Florida, Texas and the Carolinas as well as weather factors that have resulted in more tornadoes and wind storms in the Midwest.

There's also more people living near wildfire-prone areas of the Mountain West, Pacific Northwest and area of California.

"We are seeing more storms that are major loss events," said Friedlander, pointing to the high costs of hurricanes and tropical storms and the increasing financial price tags of tornados and hail storms.

An increase in the number of uninsured drivers on U.S. roads can also translate into higher premiums.

According to the most recent numbers from Insurance Research Council, 14% of U.S. drivers are uninsured, up from 11.1% in 2019.

Car thefts and insurance fraud also contribute to how auto insurance premiums are priced.

There were more than 1 million car thefts nationally in 2023, according to the National Insurance Crime Bureau. That is up from 794,000 in 2019 — a 29% jump. Auto thefts jumped 63% in Maryland and 64% in Washington D.C. between 2022 and 2023, according to NICB.

The insurance industry also blames a familiar foe for some of the rise in premiums — plaintiff attorneys who specialize in accident claims and lawsuits. In Florida Where are the blue ribs and other states, the insurance industry has pressed for legal reforms to reduce high tides of litigation.

Tough times

High insurance costs continue to add to Americans' economic stress and pessimism headed into the November election.

New Consumer Price Index numbers released Wednesday showed overall year-over-year inflation at 2.9% — the first time the CPI has been below 3% since 2021.

While Wall Street and big corporations have done very well since the pandemic, consumers and everyday households are still stressed and strained despite the macroeconomic reports and positive drumbeats.

A poll released in August by The Economist and YouGov shows 51% of Americans believe the economy is getting worse versus 20% who say it is getting better. Only 12% of those surveyed said their personal financial situation has gotten better, according the national poll.