In 2024, insurance company stocks have outperformed the S&P 500 index, only lagging behind the exceptional performance of semiconductor stocks.
The iShares U.S. Insurance ETF (NYSE:IAK) has experienced a 5% increase in January, surpassing the 3% rise of the SPDR S&P 500 ETF Trust (NYSE:SPY).
But what is driving the rally in U.S. insurance stocks?
Insurance Costs For Motor Vehicles Are Soaring
The December Consumer Price Index report provides valuable insight into the significant price increases experienced in motor vehicle insurance.
The index for motor vehicle insurance rose by 1.5% in December, following a 1.0% increase in the previous month.
Compared to December 2022, motor vehicle insurance costs have soared by +20.3%. This is the highest price increase for any item in the inflation basket over the past year.
The Influence Of Electric Vehicles (EVs)
A Bloomberg report on Thursday highlighted a key factor influencing this trend: the complexity and costliness of repairing modern vehicles, especially those equipped with advanced technologies.
Bloomberg quotes Ben Clymer, a co-owner of a body shop chain in Southern California, who said the complexity of vehicles these days is generating increasing costs of maintenance. Repairing a basic model Kia is not like it used to be, as it might have 10 different computers and numerous sensors. This complexity, along with rising parts prices, Clymer explains, “creates the perfect storm for higher repair costs.”
This has led to the fastest increase in auto insurance rates in nearly half a century.
The average repair cost for a traditional vehicle is now $4,437, according to CCC Intelligent Solutions, an auto insurance processing company. For EVs, the average repair cost is 49% higher, at $6,618, due to their advanced tech and the specialized handling needed for their electric powertrains.
Although equipped with fewer components compared to traditional internal combustion engine vehicles, EVs typically require over 20 days for repairs, which is 40% more time than needed for non-EVs, as reported by CCC Intelligent Solutions.
Top-Performing Insurance Stocks In 2024
Below is a list of the best-performing insurance stocks year-to-date included in the iShares U.S. Insurance ETF.
| Company | Price | Weight | YTD Return |
|---|---|---|---|
| Oscar Health, Inc. (NYSE: |
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