It’s no secret that in the US, certain types of insurance are getting pricier and tougher to come by.
Allstate, State Farm and AIG have stopped underwriting new homeowners’ policies in California because of the risk of destructive wildfires. Private insurers have almost completely withdrawn from parts of Florida, Louisiana and other environmental-disaster-prone areas.
But when it comes to sheer scale of macroeconomic impact, climate disasters can’t rival soaring US car-insurance costs.
To wit: The cost of tenants’ and household insurance has climbed 1.6 per cent over the past year. Car insurance has soared 17.1 per cent.
And if we’ve done our maths right — pls email us if we haven’t — motor-vehicle insurance costs have accounted for 18 per cent of the increase in unadjusted CPI from April to May. That’s . . . insane?
At first we thought there could be a seasonal effect at play. But then we remembered that May’s increase in car-insurance costs was larger after its seasonal adjustment; up 2 per cent, compared to an unadjusted 1.7-per-cent increase.
One reason auto insurance can make such a big impact on inflation is, to put it simply, there are way more car owners in the US than there are homeowners in disaster-stricken California, Louisiana and Florida.
Motor-vehicle insurance had a “relative importance” comparable to electricity costs in April, which sort of makes sense since both are widely used with required monthly payments. Tenants’ and homeowners’ insurance was weighted similarly to bedroom-furniture costs.
To step back a bit, readers may want to think of this as the opposite of the wireless-phone price wars that helped weigh down inflation in 2017. The underlying trends here are much weirder than a simple price war, as they include a new law in Florida, pricier car repairs, and possibly a TikTok trend.
But those odd trends have all converged to drive prices higher for a quasi-utility, and that’s having a surprisingly large effect on inflation.
Further reading:
— What’s going on with US car insurance? (FTAV)
Source: Economy - ft.com
