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The consumer price index (CPI) shows that auto insurance prices are up 19.2% in the past year, far outpacing the overall inflation rate and exceeding the inflation rate for pretty much any other significant spending category.
Auto insurance costs have climbed because car prices shot up during the pandemic, and dangerous driving behavior increased as well, leading to more claims and more severe claims. Insurance companies need to pass these costs along to their customers, but it often takes a long time to get rate increases approved by state regulators.
This lag is one of the reasons auto insurance prices are still soaring even though inflation is easing in general.
“A lot of the big rate increases were kind of delayed from 2020 on to 2024, and then ultimately we’re seeing those now,” says Sean Scaturro, advice director at USAA.
Allstate, for example, secured auto insurance rate hikes in New York (14.6%), California (30%) and New Jersey (20%) that went into effect last month.
According to a December report from AM Best, personal auto insurance companies had underwriting losses of $33.1 billion in 2022 and “results continued to slide in the first half of 2023.” A major part of the problem is that the average cost per claim has risen to $11,102 after jumping 11% in a year.
Insurance companies are trying to course correct, and drivers are seeing their premiums skyrocket as a result.
In the year ahead, Scaturro expects fewer major premium increases considering that many insurers raised rates “pretty dramatically” in recent months. However, if your premium hasn’t gone up yet, it’s possible that a hike is coming.
Laura Longero, executive editor of CarInsurance.com, says it’s tricky to predict how much more premiums will rise in 2024, but their best guess is about a 10% increase. That wouldn’t be as bad as 2022 or 2023, though it would still be painful for consumers, who are already paying an average of $1,765 per year for full-coverage insurance, according to an August report from AAA. That’s a steep increase from an average of $1,194 in 2019.
According to Jerry, an insurance shopping app, auto premiums are up 43% in the past three years and there’s “no sign that insurers are done with steep rate increases.” By mid-2024, most insurance providers will have proper pricing in place and premium costs will level off, Jerry forecasts.
“As inflation declines and insurers see rate increase approvals start to earn in, loss ratios will decline and we’ll begin to enter a period of improved price stability for consumers,” says Josh Damico, vice president of insurance operations at Jerry.
Why is car insurance so expensive?
Rising car repair prices and more expensive rental cars are among the issues contributing to higher auto insurance costs.
If you get in an accident, the parts needed to repair your car are probably significantly more expensive now than they were before the pandemic. The rental car that the insurance company pays for you to drive while your vehicle is in the shop probably also costs more. Plus, you may need to drive that rental for a longer time period if there’s a supply shortage for the part or a labor shortage affecting the repair time.
“All of this is coming together with really bad driving behavior that we saw during COVID that has not corrected,” says Tony Cotto, director of auto and underwriting policy at the National Association of Mutual Insurance Companies. “We have record levels of severity in collisions.”
The good news is there are signs that some of the inflationary pressures on car insurance will ease this year. Used car prices are falling, and new car prices are finally flattening out. That matters a lot because insurance companies can be on the hook for replacing your car or another person’s vehicle after an accident.
Inflation in the cost of auto body repair is also slowing, according to Longero. Prices increased by just 3.3% in the past year, down from a roughly 12% increase in 2022, per CPI data.
Lastly, insurance companies should benefit from the overall cooling of inflation because some of the reasons their costs have been going up are unrelated to cars and driving. For example, insurers were impacted by increases in the costs of legal services and medical care, Cotto says. Higher labor costs also increased their expenses.
The best way to get a good deal on car insurance is to shop around and switch auto insurance companies if it turns out you’re overpaying. Longero recommends comparing quotes every six months to a year, and she encourages getting rates from a minimum of three companies to make sure you’re getting a good deal.
Shopping for car insurance is especially important if you have blemishes on your record. That’s because companies penalize accidents and tickets differently, so you may get a wider range of price quotes.
Scaturro also encourages drivers to explore discounts. For example, insurance companies often reward customers who have safety features in their car, and there may be a deal if you opt-in to a usage-based car insurance program that monitors things like distracted driving and harsh braking.
Other tips for lowering your car insurance premiums include raising your deductible, bundling your auto insurance coverage with home insurance for a discount and checking with your insurance company to make sure you’re not paying for more mileage than you’re actually driving.
This article originally appeared here and was republished with permission.
