Car Insurance Rates Soar Even Faster, Up More Than 22% In A Year; Why Is This Happening?

Car insurance premiums have surged by 22.2% over the past year, according to March’s Consumer Price Index figures from the Bureau of Labor Statistics, far outpacing the current inflation rate of 3.5%. Over the same 12-month period, car repair costs increased 11.6%, with maintenance and repair costs up 8.2%.

Premium costs are accelerating, with March’s 2.6% month-over-month jump in car insurance costs almost three times the size of February’s 0.9% rise, and 12-month increases exceeding 20% over the past four months–the largest increases since the 1970s. A Forbes Advisor analysis found U.S. drivers pay an average of $2,150 a year for full coverage car insurance.

What’s Fueling the Rise in Car Insurance Premiums?

Insurers cite several factors for rising car insurance rates. They include:

• Higher costs. An increase in prices for car parts, repairs and new and used cars, along with higher medical costs, are making claims more expensive. In addition, many newer cars feature more sophisticated technology that’s pricier to fix.

“Sophisticated vehicle safety systems can reduce accidents but they haven’t held down rates because they are so expensive to repair,” notes Amy Danise, lead insurance analyst for Forbes Advisor. “A small crash can mean substantial repair bills when exterior cameras and sensors are damaged.”

• An increase in accidents. The number of insurance claims related to car crashes has risen 14% since 2020, while claim severity jumped 36%, according to a July 2023 report from the American Property Casualty Insurance Association.
• A spike in auto theft. Car theft rates went up sharply in 2023, increasing 29% in the 34 cities included in a year-end report by the Council on Criminal Justice. It found that motor vehicle theft has more than doubled since 2019, even as other crime rates fell. The National Insurance Crime Bureau reports that in 2023, vehicle thefts in the U.S. topped 1 million for the second consecutive year.
• More severe weather. The number of catastrophic weather events has increased, causing more vehicles to be damaged by floods, hail, fire, hurricanes and tornadoes.

Doug Heller, director of insurance for the Consumer Federation of America, acknowledges that the industry had a tough year in 2022 as more drivers returned to the roads and supply chain disruptions drove up prices. But he contends that insurers responded with aggressive rate increases and stricter rules that have continued well after overall inflation came down.

“They’re continuing to live as though it’s 2022 and price their policies that way,” he says.

Rising insurance rates failed to catch up to auto insurers’ losses last year, according to a report from S&P Global Market Intelligence. But S&P also predicts the industry will be close to breaking even in 2024 and should see profitability in 2025 and 2026. It’s not clear how that might affect premiums.

How Can You Lower Your Car Insurance Costs?

There are steps you can take to get the cheapest car insurance possible. They include:

• Shopping around. Compare quotes from several providers. Heller suggests shopping for insurance each year. “You can actually find savings, even in an environment where rates are going up,” he says.
• Bundling your policies. Insurers will often give you a discount if you bundle your car and homeowners policies with them. They may also offer discounts for low-mileage drivers or teenage drivers who get good grades, for example. Be sure to ask what discounts are available.
• Raising your deductibles. Increasing your deductibles for collision and comprehensive coverage will likely lower your premium. But keep in mind that you’ll pay more out of pocket if you make a claim. You might also consider dropping some coverage, such as collision insurance on an older car.
• Tracking your driving. Usage-based car insurance uses technology to collect information about your driving habits and assign you a score. If you score well enough, you might pay less for insurance.

One thing experts agree you should not do is drop your insurance coverage. Most states require drivers to be insured, and if you get in an accident without insurance, you could be on the hook for huge costs.

Dropping your insurance now could also cost you if you decide to insure your car in the future. In most states, Heller says, “You’re going to get penalized for a break in coverage, and that penalty can be 20, 40, even 100%.”