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 assigned–risk policies are counted in the index’s 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 2017, the relative importance of motor vehicle insurance within the U.S. CPI for All Urban Consumers (CPI-U) was 2.352 percent of the total weight.
|New and Used Motor Vehicles||7.080|
|Motor Vehicle Parts & Equipment||0.382|
|Motor Vehicle Maintenance & Repair||1.123|
|Motor Vehicle Insurance||2.352|
|Motor Vehicle Fees||0.538|
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. 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 policies—since 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 carrier’s 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 CPI’s 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 policy’s 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/pdf/homch17.pdf) or you may call the Information and Analysis Section of the CPI at 202-691-7000.
Last Modified Date: February 22, 2018