The cost of property and casualty insurance is rising significantly faster than broader consumer price inflation. Premiums on home insurance policies have risen at double the pace of annualized income growth since the early 2000s. Emerging trends could continue to exacerbate this imbalance. Theft, natural disasters, and litigation are all on the rise and piling pressure on insurers, forcing them to raise premiums. That is in addition to broader inflation increasing the cost of labor and materials associated with repairs and construction. Despite the increase in payouts to address claims, insurer shares have been on the rise lately, outperforming other portions of the financial sector in 2024.
Related ETFs: iShares US Insurance ETF (IAK), SPDR S&P Insurance ETF (KIE)
In Q1, price increases in financial services and insurance pushed personal consumption expenditures (PCE) in this category up by 4.6% QoQ – the steepest rise in almost a quarter of a century. PCE prices as a whole only gained 3.4%. Upon recording their latest gain in April, auto insurance premiums have now risen throughout a period 28 consecutive months. Though the seasonally adjusted MoM gain in the consumer price index (CPI) was gauged at just 0.3% last month, the motor vehicle insurance index within the CPI rose by a much hotter 1.8%. Though that slowed MoM from a 2.6% gain in March, the YoY gain accelerated to 22.6% versus 22.2% in the prior period.
These sort of price hikes on insurance have not seen since the 1970s. Premiums are on the rise as insurers face an ongoing uptick in risks facing their policies. More car accidents are being caused by distracted drivers looking at phones, auto theft is becoming more common, and the costs associated with repairing damaged vehicles are inflating the bills insurers are obliged to cover. For every $100 in premiums taken in, car insurers paid out $104.90 in 2023. That was an improvement from the prior year, but a signal that premiums may…
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