The cost of the average car insurance policy last month was 20.3% higher than a year before, according to the Bureau of Labor Statistics. It’s the highest one-year increase in insurance costs since 1976, according to Bloomberg.
The average 6-month policy started in December cost Americans $ 780.28.
Auto insurance showed a higher increase than any other element of the Consumer Price Index – the government’s primary measure of inflation. The index showed overall inflation of 3.4% over the same period.
Car insurance rates differ wildly by state, as state laws control liability in accidents.
Read: These are the cars that cost the most and least to insure
Soaring repair costs
Soaring repair costs are the single largest factor driving insurance inflation. A New York Times analysis in July found that theaverage cost to repair a car after an accident has soared 36% in just five years.
Today’s increasingly high-tech cars often have expensive sensors in vulnerable places. The radar and lidar sensors that govern a smart cruise control system, for instance, need to sit on the exterior of a car to work properly. That leaves them susceptible to damage in even low-speed accidents.
Even a simple windshield replacement can now be a $ 1,000-plus repair thanks to embedded sensors and built-in lenses for traffic-scanning cameras.
Also see: The 9 things that are most likely to affect your auto insurance rates
Climate-driven disasters also a factor
A Washington Post analysis in September found that climate-related weather events also play a role.
Hurricane-prone Florida is the ultimate example. At least one prominent insurer — Farmers Insurance — recently elected to abandon the state entirely.
Also see: Lawmakers probe insurance crisis as premiums skyrocket
EVs cost more to repair
Electric vehicles are a small but growing percentage of the cars on American roads. Kelley Blue Book parent company Cox Automotive reports that 7.6% of the new cars Americans bought last year were electric – up from 5.8% in 2022 and 3.2% in 2021.
EVs can be more expensive to repair than gas-powered cars. The problem is particularly acute with Tesla TSLA, +0.15% products. Some studies have shown that other brands’ EVs are only marginally more expensive to repair than gas-powered cars, but Teslas are so costly to fix that insurers often write off even lightly damaged models.
High repair costs reportedly contributed to Hertz’s HTZ, -4.12% recent decision to divest much of its Tesla fleet.
Read more: Is buying a used Tesla from Hertz a good deal? Here’s what you should know.
The company has responded by launching its own insurance. But an insurance pool made up entirely of expensive-to-repair cars has its own problems.
This story originally ran on KBB.com.