US auto insurance inflation stalls, but easing claims raise margin hopes

US motor insurance policy inflation eased for the first time after ten months of uninterrupted gains, but still gave hope of improved margins for the industry as auto repair and replacement costs eased notably, the February inflation reading from the US Bureau of Labor Statistics (BLS) showed

Motor vehicle policy costs rose 1.6% for the month, rendering a 14.5% annual rate of inflation, down from 14.7% in January, the
the first decline in the annual rate since late 2021. The February reading is nonetheless the third highest reading on record, behind January and a one-off spike in Q2 2021 that had been counted against pandemic-driven rebates in 2020.

But severity measures eased across nearly all measures of automotive repair and replacement costs.

Motor vehicle repair costs eased month to month after having risen in excess of 2% for four of the past five months as the last major cost category to add to the industry’s severity threats. The annual inflation rate for the repair costs had gone from still single digit in July to 23% for January before retracing 5.4 percentage points to 17.7% for the February reading.

Likewise body work: annual inflation rates on body work is down for the fourth month running, now to 9.2%. Parts and equipment enjoyed its third month of single-digit annual inflation, now at 6.1%.

Replacement costs continued their downward track. Used car deflation began in November and deepened to a 13.6% annual rate in February to take the edge off the post-pandemic skyrocketing of used car prices. New car inflation, double digit as recently as August, is now down to a 5.8% annual pace. The price index for used cars and trucks may be down some 14% from peak post-pandemic readings in 2022, but remains some 32% above the 2019 average.

Tenants' and household insurance, left seasonally unadjusted by BLS, has not shown any of that volatility, despite a run up in construction and repair costs. Annual inflation readings had held within arm’s length of zero from roughly February 2022, before ticking up to a still anaemic 0.9% and 0.8% over the past two months. Housing construction inflation may be well down from a mid-year 2022 peak, but still came in at 11.5% in January, the most recent reading.

THE broad measure of US consumer inflation slipped down to a 6.0% annual pace in February, the lowest reading since September 2021 and 2.9 percentage points below the peak from mid-2022.

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