How everything from supply chain prices to lousy credit scores can cause increased auto insurance rates

Gas pump prices have been one inflationary challenge hitting consumers’ pocketbooks in recent years; vehicles’ insurance costs have been another.

But, even as government data points to some recent easing of inflation across gas prices and other goods and services, those insurance bills are still heading in the wrong direction, according to Eric Poe of CURE Auto Insurance.

“The cost of insurance went up 37% from 2021 to 2022,” he said. “That did not ease in 2023.”

The cost of auto insurance soared almost 20% throughout most of 2023, according to a U.S. Bureau of Labor Statistics’ Consumer Price Index report from the fall.

The bad news gets worse, Poe said. Car insurance is already higher in New Jersey than most states. According to an analysis done by financial education website MoneyGeek, New Jersey’s car insurance costs an average of $124 each month. The going rate nationally is around $85.

Poe partly attributes that to recently introduced state laws, such as the increase to the minimum amount of liability coverage required of auto insurance policyholders as of 2023.

There have also been what Poe believes to be “attorney-friendly” laws added to the books, including an avenue for first-time policyholders to sue their insurance company for not settling claims within a time period deemed reasonable.

At the same time, supply chain slowdowns in the automotive manufacturing sector had everyone clamoring to find replacement car parts for damaged vehicles, Poe said. There were massive shortages, and premiums paid for the limited supply of parts that could be found.

An overlooked aspect of that, Poe noted, is that cars are built with technology today that makes them far more expensive to repair. A simple bumper might have had a replacement cost of $30 a decade ago. Today, it might have sensors built into it that make it more like $300.

“I’ve been to conferences where they’re showing off technology for airbags on the front hood of a car, with the thought being that, if you hit a pedestrian, the collision won’t be as bad,” he said. “That could save a handful of lives, but it will also cost billions when those things deploy — if you think of how often cars have a frontal impact that could trigger these maybe $4,000 airbags. That will trickle down to policyholders.”

Even with current technology, Poe doesn’t see an end in sight to escalating vehicle repair costs, which factor heavily into how much insurers are charging customers.

“With this perfect storm fueling an increase in the basic cost of insurance in New Jersey and around the country, national carriers have lost billions (of dollars),” he said. “You have companies like GEICO, the largest writer of policies in the state, filing for 26% rate increases now.

“So, what you have brewing is essentially a semi-crisis for the affordability of car insurance in the state of New Jersey.”

That crisis won’t be felt to the same extent by all Jerseyans. As Poe has constantly critiqued about his industry himself, rates are exponentially worse for underrepresented and disadvantaged communities.

The Garden State remains among the states that permit auto insurers to use a person’s credit scores in determinations of how much they’ll pay. MoneyGeek’s analysis pointed to New Jersey’s average car insurance costs being $90.25 for those with “excellent” credit scores and an average of $212.58 for those with “poor” credit scores.

Poe considered, but ultimately declined to join the near-unanimous majority of companies using credit scores to establish rates at not-for-profit CURE Auto Insurance, where he’s chief operating officer.

That refusal to adopt these practices is what he credits for a 30% uptick of his business in 2023.

But, when it comes to helping Jerseyans overcome life’s challenges, he’d still prefer — especially as auto insurance rates skyrocket — that no insurer be allowed to use them.

“It’s sad we can’t protect those who, for one reason or another, don’t have good credit,” he said. “We’re kicking the bottom-third income earners when they’re already down.”