The sticker shock that U.S. drivers feel when they see their auto insurance premiums jump is real—but it’s not quite as bad as a major economic indicator suggests, according to Swiss Re economists.

Headlines like “‘Remarkable’ surge in auto insurance costs fans U.S. inflation” on a January Reuters article, and Surging auto insurance rates squeeze drivers, fuel inflation” topping a more recent one from the Associated Press in late April, document the persistent upward climb in the “Motor vehicle insurance index” component of the U.S. Consumer Price Index.

The motor vehicle index figures posted on the U.S. Bureau of Labor Statistics website reveal a 19.1 percent jump in the back half of 2023 compared to the same period in 2022, continued jumps of 20.6 percent for the months of January and February in 2024 compared to the same months in 2023, and a 22.2 percent for March 2024 compared to March 2023.

Can those be right?

Probably not, said James Finucane and Mahir Rasheed, senior economists at Swiss Re Institute, who wrote about discrepancies between various estimates of auto insurance price inflation for the month of March on the same day as the AP article appeared in a report titled “Motor insurance: price rises to decelerate from current heights as claims inflation eases.” They followed the report a few days with another explanatory focused article, “U.S. CPI inflation overestimating auto insurance prices, explaining 1/3 of the gap with PCE.” (Editor’s Note: The earlier report includes information on the motor insurance inflation and market reactions in Germany and the UK as well as the United States.)

The 22.2 percent figure, they note, is the highest level recorded for the CPI component since 1976. But calculating their own estimate based on industry rate filings, the Swiss Re economists came up with a 14 percent year-over-year in March for U.S. auto insurance premiums.

Highlighting a wide variation in other official estimates of personal auto insurance inflation, the Swiss Re reports note that the Producer Price Index series, also published by the U.S. BLS, puts the increase in private passenger auto insurance premiums at 6.5 percent for March 2024. (Source: U.S. Bureau of Labor Statistics, Producer Price Index by Industry: Premiums for Property and Casualty Insurance: Premiums for Private Passenger Auto Insurance [PCU9241269241261], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/PCU9241269241261, May 1, 2024)

Delving into the methods for compiling the various indexes in their blog item, the authors explain why they believe the CPI figure is an overestimate and the PPI is an underestimate, and also describe the mechanics of another indicator from the Personal Consumer Expenditures series.

A likely reason for the divergence between the CPI and PPI figures, they say, is the fact that CPI follows a sample of policies regardless of policyholder behavior. It does not account for consumers switching to cheaper policies, while PPI does.

“CPI and PPI started to diverge right at around the time that consumers started shopping around and policy retentions started to drop,” they wrote, also noting that this doesn’t explain the entire increase in the CPI motor vehicle index.

Related article: “Progressive Gains as Drivers Shop for Auto Insurance–Again“

“The discrepancies in official data could slow reported disinflation and complicate monetary policy decisions,” they wrote.

Nevertheless, it is true that U.S. auto insurers have been putting through price increases for two years—with good reason. Citing information from the NAIC Insurance Expense Exhibit, the authors reveal that U.S. personal auto insurers posted $53 billion of underwriting losses in two-year period 2022-2023.

The Swiss Re economists foresee an end to price hikes with improved insurer profitability—driven by more adequate insurance rates and rising investment returns—combining with falling prices for used cars and repairs to drive increased competition among carriers in a slowdown in premium rate gains.

Related article: “Personal Auto Competition Heating Up, Root Execs Say“

A graphic in the report shows used car disinflation of 4.7 percent forecast for the U.S. in 2024, followed by a 1.4 percent inflation rate in 2025. Swiss Re forecasts inflation in maintenance and repair costs dropping from 11.6 percent last year to 6.7 percent in 2024 and 4 percent in 2025.

Consumer shopping is another factor that supports the forecast of decelerating premium rates, the reports note.

“If U.S. motor [insurance] CPI cools in 2H24 as we expect, its outsized 0.8 ppt contribution to core inflation of 3.8 percent in March 2024 should ease by the year end,” the report says.