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The latest inflation boost? Soaring insurance costs

March 13, 2024

It is costing Americans more to protect against disaster, a development that is pushing up official inflation figures.

Various kinds of insurance — including car, medical and property protection — are costing more, at least as official inflation figures measure them. Although it is tough for economic policymakers to do much to snuff out the various drivers behind the trend, the pressure is helping to increase overall prices.

“Insurance of various different kinds — housing insurance but also automobile insurance and things like that — that’s been a significant source of inflation over the last few years,” Federal Reserve Chair Jerome Powell said during congressional testimony last week. “And it’s to do with a million different factors.”

Vehicle insurance is the one adding notably to overall inflation, said Omair Sharif, founder of research firm Inflation Insights. Part of the increase in car insurance comes from the fact that parts and replacement vehicles have become a lot more expensive over recent years, and that is slowly feeding through to insurance premiums, he said.

Economists at Goldman Sachs expect that car insurance measure to have picked up sharply again in February, “reflecting strength in online insurance price data,” economists wrote in a note previewing the consumer price release Tuesday.

Insurance could stop adding so much to inflation with time, as the lagged effects of higher car costs in particular become more incorporated into insurance premiums. But it’s unclear how long it could take the full effect to fade.

And it’s not just car insurance that has been moving up. Medical care insurance is also higher, though it is measured in inflation in a wonkier way, essentially by taking a look at an insurance company’s earnings after it has paid out benefits. Sharif expects medical insurance to remain positive at least until April, when the data is in for an update, and likely after that.

And tenant and household insurance has been rising quickly — likely partly as climate-related problems such as wildfires and sea level rise make homes in some regions of the country more expensive to insure, increasing the policy premiums that feed into that measure.

“In the longer term, companies are withdrawing from writing insurance in some coastal areas,” Powell noted, adding that “it’s a significant issue.”

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