But the most eye-popping inflation at the moment is coming from an industry that’s bearing large operating losses and has actually been undercharging consumers for the last few years., the cost of car insurance is up 22.6% during the past year, the biggest jump by far across the 28 major spending categories Yahoo Finance has been tracking since 2021.
The insurance industry overall is still profitable. Auto insurance is only about one-third of all the insurance carries provide, with companies also providing home insurance and other types of coverage. The industry’s overall profit margin dipped from 10.9% in 2021 to 4.7% in 2022, according to S&P Capital IQ. It may have rebounded to 9.5% in 2023, but that's still below the 11.1% average for the S&P 500 as a whole.
Perhaps the most unforeseen factor affecting auto insurance costs has been a jump in fatality rates. There’s been a long-term improvement in auto safety, driven by better technology and other factors. But car-crash fatality rates jumped in 2020The higher fatality rates indicate that crashes are becoming more severe, pushing up the costs of repair and replacement as well as legal liability.
Auto insurance is also heavily regulated, with carriers in most states requiring permission to raise premiums above certain levels. It can takefor insurance regulators to allow carriers to raise premiums to levels that cover losses. Those are some of the reasons insurance premiums are only now adjusting to costs that started to rise beyond normal levels at least three years ago.