Auto insurance costs in particular are making the Federal Reserve’s job more difficult. We can’t drill baby drill our way out of this cycle.

Soaring insurance premiums, particularly for autos, are fueling rising consumer prices and complicating policymakers’ attempts to beat back inflation.

Inflation cooled for much of the year before picking up this fall, with insurance prices for autos, homes and medical care contributing to a 15 percent of the increase in overall consumer prices, economists say. A double-digit spike in auto-insurance prices drove the vast majority of that rise.

Indeed, November’s hotter annual inflation gain of 2.73 percent would have been much lower, closer to a 2.37 percent inflation rate, without the outsize increase to auto insurance.

“It is punching well above its weight for that contribution,” said Josh Hirt, a senior economist at Vanguard.

Insurance premiums are among a handful of stubborn costs that have yet to yield much relief for consumers, in addition to shelter costs and other services like medical care.

Car insurance has remained elevated, and it has a bigger influence on overall inflation than other types of insurance because it’s required to drive in most states. And that cost can multiply with more than half of households owning two or more cars, according to census data.

Since just before the pandemic in December 2019, consumers have seen a roughly 51 percent jump in auto-insurance prices, Hirt said.

Car insurance prices revolve around the supply of cars available for purchase, which has been trending far more expensive as manufacturers funnel resources into souped-up versions of pricey models and cut back on cheaper options. New technologies have made vehicles safer, but the costs are higher to replace these more expensive parts. Labor costs to repair cars have also skyrocketed.

Rising accident frequency and severity is another factor, said Loretta Worters, a spokeswoman for the Insurance Information Institute, fueled by distracted and reckless driving. “As a result, we are seeing more fatalities and injuries, leading to increased attorney involvement in claims,” she said.

Kyle Morrison, 52, of Seattle, was taken aback by the sharp rise in insurance premiums on his 2017 Kia Forte, which jumped to about $200 per month in December from roughly $130, he said.

Initially, Morrison, a transportation contractor with a clean driving record, thought the price hike by his insurer, Safeco, stemmed from a recent move to a new neighborhood, he said. But his insurance representative told him it largely had to do with price increases “across the board and from all insurance carriers,” Morrison said.

Liberty Mutual, which owns Safeco, declined to comment.

Overall inflation has eased over the past year, though data released Wednesday showed prices appeared stuck above the Federal Reserve’s goals, which aim to keep inflation at 2 percent.

Top Federal Reserve officials have signaled that insurance costs are making it harder to bring down lingering inflation.

“It is clear that 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 H. Powell told senators in March.

Going forward, auto insurance prices could ease soon because they’re catching up with big jumps in auto prices in recent years. There is some evidence of that happening with the latest report on consumer prices, as auto insurance inched up just 0.1 percent on a monthly basis. Its roughly 13 percent annual gain was down from a 14 percent increase in October.

Some economists warn costs could remain elevated or even rise further, depending on the way President-elect Donald Trump implements promised tariffs on imports from Mexico and Canada, where many autos are manufactured. Trump has threatened to slap a 25 percent tax on all products from Canada and Mexico unless they stem the flow of migrants and drugs.

Tariffs on motor vehicles and parts will “lead to another round of auto-insurance inflation, which will then create further stickiness in overall inflation,” said Joe Brusuelas, chief economist at RSM.

Another wrinkle that could influence prices: whether more motorists simply forgo auto insurance altogether, which could ultimately fuel higher premiums for everyone else. Since 2020, the rate of uninsured motorists has continued to inch up each year, according to the Insurance Research Council, rising from 11.6 percent in 2019 percent to 14 percent in 2022, the last year for which complete data exists.

The recent cycle of premium increases for auto insurance “is likely the biggest driver for the increased rate of uninsured motorists,” IRC President Dale Porfilio said in a statement.

Sandy Borkovic, 59, is considering going carless. A contract processor at an Arizona-based mortgage broker, Borkovic saw the bundled price to insure her two cars and home in Phoenix shoot up by about $5,000 this year, to nearly $12,000 per year.

She’s had no tickets or accidents, nor any claims on the house or the cars — a 2021 Chevy Tahoe and a 2014 Nissan Altima. Though she tried to shop around for a better deal, her insurance agent said there weren’t better rates elsewhere.

“I’ve lived in Arizona for 31 years; I have never seen insurance rates like this, ever,” she said.

She’s planning to sell her home and relocate to New York City — where she won’t need a car.

And get used to homeowners insurance going up too.

If you're one of the 94% of homeowners who renewed their policy last year just to find out your home insurance rates went up, here are a few reasons why this might have happened.

1.  Increase in wildfires, tornadoes, hurricanes, & other natural disasters

Worsening hurricanes in Florida, rampant wildfires out West, devastating tornadoes in the Heartland, and unexpected cold snaps in Texas have caused record-setting claim payouts and financial losses in the home insurance industry. As a result, many insurance companies are increasing rates to pay for these losses and to ensure they don’t go bankrupt after future climate disasters. 

As of October 2024, the U.S. has seen 20 billion-dollar disasters. According to the National Oceanic and Atmospheric Administration, the average number of billion-dollar disasters from 1980 to 2023 was 8.5 per year, but from 2019 to 2024 the average is 20.4 events.

But it isn't just homes at risk of hurricanes or wildfires that are paying more for insurance. In fact, several states with the highest average rate increases at renewal the last few years are in the middle of the country — in large part due to the higher incidence of hail and wind damage claims in those states.

As climate change continues to alter weather patterns all over the country, certain areas that insurers used to consider to be low risk are now viewed as the opposite, and homeowners in these areas may suddenly be seeing steep premium hikes as a result.

2. Fewer carriers are willing to write policies in high-risk states

When there are fewer insurers left to choose from in a particular state or region, the ones remaining will often implement stricter underwriting criteria and increase costs to reflect both the higher demand and exposure, resulting in higher premiums for homeowners. We've seen this trend continue on in high-risk states like Florida and California.

Just last year, Allstate and State Farm stopped writing new policies in California, Farmers placed a cap on how many new policies it would write in the Golden State, and Safeco dropped around 1,000 policies in the Bay Area.

The same goes for Florida, where as many as 10 companies have already gone insolvent since 2020. Last year, AAA announced it would not renew home insurance policies in "higher-exposure" areas of Florida, and Farmers announced it will stop writing new policies and won't renew thousands of existing ones. This is on top of Progressive, AIG, and Heritage who had already announced they were no longer writing new policies in Florida.

3. Increase in supply chain issues & the cost of building materials due to inflation

Home insurance premiums have gone up everywhere due to the increased cost of labor and construction materials thanks to supply chain issues and high inflation that started in 2020 and has persisted until today.

Your rates are based heavily on how much dwelling coverage is in your policy — this is the part of your home insurance that pays to rebuild your home if it's damaged. Higher rebuild costs due to inflation means homes are requiring higher dwelling coverage limits to keep up with the rising prices. 

This has led to higher home insurance rates across the board. While lumber and wood construction materials have tapered off since reaching highest in 2022, prices remain high compared to before the pandemic. Costs of material goods for new residential construction and asphalt roofing materials also remain high, according to the U.S. Bureau of Labor Statistics.

The labor shortage in the construction industry also remains a problem for insurers — and in turn, homeowners. There were 368,000 construction job openings as of August 2024 — 138,000 more than July and more than double the number expected by the U.S. Bureau of Labor Statistics.

And get used to your homeowners insurance going up too.

If you're one of the 94% of homeowners who renewed their policy last year just to find out your home insurance rates went way up, here are a few reasons why this might have happened.

1.  Increase in wildfires, tornadoes, hurricanes, & other natural disasters

Worsening hurricanes in Florida, rampant wildfires out West, devastating tornadoes in the Heartland, and unexpected cold snaps in Texas have caused record-setting claim payouts and financial losses in the home insurance industry. As a result, many insurance companies are increasing rates to pay for these losses and to ensure they don’t go bankrupt after future climate disasters. 

As of October 2024, the U.S. has seen 20 billion-dollar disasters. According to the National Oceanic and Atmospheric Administration, the average number of billion-dollar disasters from 1980 to 2023 was 8.5 per year, but from 2019 to 2024 the average is 20.4 events.

But it isn't just homes at risk of hurricanes or wildfires that are paying more for insurance. In fact, several states with the highest average rate increases at renewal the last few years are in the middle of the country — in large part due to the higher incidence of hail and wind damage claims in those states.

As climate change continues to alter weather patterns all over the country, certain areas that insurers used to consider to be low risk are now viewed as the opposite, and homeowners in these areas may suddenly be seeing steep premium hikes as a result.

2. Fewer carriers are willing to write policies in high-risk states

When there are fewer insurers left to choose from in a particular state or region, the ones remaining will often implement stricter underwriting criteria and increase costs to reflect both the higher demand and exposure, resulting in higher premiums for homeowners. We've seen this trend continue on in high-risk states like Florida and California.

Just last year, Allstate and State Farm stopped writing new policies in California, Farmers placed a cap on how many new policies it would write in the Golden State, and Safeco dropped around 1,000 policies in the Bay Area.

The same goes for Florida, where as many as 10 companies have already gone insolvent since 2020. Last year, AAA announced it would not renew home insurance policies in "higher-exposure" areas of Florida, and Farmers announced it will stop writing new policies and won't renew thousands of existing ones. This is on top of Progressive, AIG, and Heritage who had already announced they were no longer writing new policies in Florida.

3. Increase in supply chain issues & the cost of building materials due to inflation

Home insurance premiums have gone up everywhere due to the increased cost of labor and construction materials thanks to supply chain issues and high inflation that started in 2020 and has persisted until today.

Your rates are based heavily on how much dwelling coverage is in your policy — this is the part of your home insurance that pays to rebuild your home if it's damaged. Higher rebuild costs due to inflation means homes are requiring higher dwelling coverage limits to keep up with the rising prices. 

This has led to higher home insurance rates across the board. While lumber and wood construction materials have tapered off since reaching highest in 2022, prices remain high compared to before the pandemic. Costs of material goods for new residential construction and asphalt roofing materials also remain high, according to the U.S. Bureau of Labor Statistics.

The labor shortage in the construction industry also remains a problem for insurers — and in turn, homeowners. There were 368,000 construction job openings as of August 2024 — 138,000 more than July and more than double the number expected by the U.S. Bureau of Labor Statistics.