How BLS Measures Price Change for Motor Vehicle Insurance in the Consumer Price Index
Motor vehicle insurance is part of the Private transportation component of the Transportation
major group of the Consumer Price Index (CPI). Every month with the release of the CPI, the
Bureau of Labor Statistics (BLS) publishes indexes for Motor vehicle insurance, Private
transportation and Transportation for the urban United States. BLS also publishes indexes for
44 selected geographic areas below the national level according to the areas publication
frequencies. The CPI began publishing the U. S. Motor vehicle insurance index on a quarterly
basis in 1947, and in 1969 changed to its current monthly publication pattern. There are
unadjusted indexes and indexes adjusted for seasonality.
This index covers physical damage, liability and miscellaneous insurance coverage for
private passenger vehicles. The major types of coverage included are collision, comprehensive,
bodily injury liability, property damage liability, medical payments, uninsured motorist, and
personal injury protection. All automobiles, vans, SUVs, and trucks that are eligible for
private passenger vehicle insurance are included. Vehicles used primarily for business and
policies written for farmers or ranch owners are excluded. Policies insuring motorcycles and
assignedrisk policies are counted in the indexs weight but are excluded from pricing.
The relative importance of a CPI component is the percent of its expenditure weight relative
to the total expenditure weight of all items in the Consumer Price Index. As of December 2010,
the relative importance of motor vehicle insurance within the U.S. CPI for All Urban Consumers
(CPI-U) was 2.563 percent of the total weight.
| Private Transportation
| New and Used Motor Vehicles
| Motor Fuel
| Motor Vehicle Parts & Equipment
| Motor Vehicle Maintenance & Repair
| Motor Vehicle Insurance
| Motor Vehicle Fees
For its insurance indexes the CPI replaces its entire sample all at once, in contrast to most
CPI components where 1/8 of the sample rotates every half year. The current CPI sample of motor
vehicle insurance carriers was selected in 2004 from a universe of companies provided by a
national insurance trade organization. Based on the dollar amount of eligible private passenger
motor vehicle insurance written by a company within each state, a sample of carriers was
selected in each of the 87 CPI pricing areas. The current sample consists of 665 individual
private passenger motor vehicle insurance polices, or quotes. Policies for a sampled carrier
within an index area were selected from the total eligible motor vehicle insurance policies
issued by the company within the index area
When the 2004 motor vehicle insurance sample was initiated, CPI data collectors, working with
individual respondents at selected insurance companies, chose actual policies that they will
follow over time. When policies were initially selected for pricing, the data collector
recorded characteristics of both the insured driver/s and the insured vehicle/s from the
selected policy. These include vehicle age and description, geographic location where
the vehicle is principally garaged, vehicle use (e.g. pleasure driving vs. commuting to
work/school; number of miles driven annually), the types and amount of insurance covered
by the policy, driver information and characteristics such as age, sex, driving record, and
marital status, and any applicable surcharges and discounts or other vehicle/driver related
fees and charges. These data define the selected policy/policyholder/vehicle and the CPI holds
them constant as it follows prices over time. The CPI uses premiums calculated for the
policies with these unchanging characteristics and not the actual premiums paid for the
initially selected policiessince the characteristics and coverages for actual policies do
change over time. The CPI began using this sample in the index for April 2005.
Each month, CPI field economists collect the premium amounts for the selected polices in the
six monthly CPI pricing areas; in the 81 bi-monthly pricing areas, they collect approximately
half in the even months and half in the odd months. To assure that the full month is properly
represented, pricing is spread out over three separate pricing periods covering the entire
collection month; the collected premiums are those in effect on the date of collection.
Each year in October/November, the model year of each vehicle in our sample is updated by one year in order to keep the age of our sample vehicles
constant; e.g., a three year old vehicle stays three years old from year to year. This annual updating process often results in premium changes.
Some vehicles show premium decreases due to changes in the newer model such as additional safety features or technological advances which may lead to
additional premium discounts. Other vehicles, due to higher expenses associated with a newer model such as the cost of repairs, show premium increases
when their model year is updated. Premium changes due to this annual model year updating procedure are used in the index calculation. Consider, for
example, a policy to insure a 2007-model year automobile that the CPI initiated into the motor vehicle insurance sample in early 2009. That automobile
was two years old at the time. In the fall of 2009, when 2010 models are introduced, the CPI changes the insured vehicle to a 2008-model so that it
remains two years old. The CPI would reflect any resulting change in the premium due to this model year updating as a price change.
The Insurance Services Office (ISO) publishes risk ratings for motor vehicles which track claims payments for each different type of vehicle.
These ratings, or Symbol Group factors, are used by insurance companies to help set motor vehicle insurance premiums. Changes in symbol group factors
normally occur at the time a new model of a particular vehicle is introduced, and are updated over the following three years. In an effort to remove the
impact of a change in the claim-risk rating, or probability of a claim being paid, from a vehicle’s premium calculation, starting with the October 2009
index the CPI began to link out any premium change for CPI-priced policies which were due to a change in the insured vehicle’s symbol group.
If a carrier introduces a new criterion for evaluating premiums, e.g., credit rating, the CPI
modifies the carriers policies to include this new factor. Again, any premium changes
are reflected in the CPI.
Sometimes insurance companies issue dividends to their policyholders either as a premium
reduction or as a separate payment directly to the policyholder. The CPI uses reduced premiums
for the effected priced policies as price reductions. On the other hand, the CPIs Motor
vehicle insurance index does not reflect dividends issued apart from collected premiums, (most
commonly separate checks to the policyholders) as price reductions because the CPI views such
payments as income that can be used at the policyholders discretion.
At times, a sampled insurance carrier or the jurisdiction where an insured vehicle is
principally garaged may mandate a change in required motor vehicle insurance coverage; such as
the minimum liability coverage or the level of deductibles. Such a change in an insurance
policys coverage or deductible amount affects both the cost (premium paid), and the
quality/financial risk (deductible paid per claim and/or the insured coverage amount per claim)
to the policyholder. Therefore the CPI does not reflect any change in the total price
(premium) reported for a CPI-priced policy due to a change in mandated coverage or
deductibles; the CPI uses the quality adjustment mechanism to introduce such changes into the
Motor vehicle insurance index.
Additional information on the Consumer Price Index
can be found in the BLS Handbook of Methods, chapter 17, "The Consumer Price Index," Bulletin 2490 (1997).
The current version of this chapter is also available on the BLS Internet site
(www.bls.gov/opub/hom/homch17_a.htm) or you
may call the Information and Analysis Section of the CPI
Last Modified Date: April 28, 2011