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Soaring Auto Insurance Premiums

What’s behind Soaring Auto Insurance Premiums, and What You Can Do

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Personal auto insurance premiums continue increasing and even motorists who have had no accidents or moving violations are seeing their premiums climb at some of the highest rates for decades.

Continuing a trend from the past six years, premiums increased an average of 17% in the first half of 2023, according to Insurify, Inc. The online insurer’s report predicts that rates will climb another 4% by the end of the year.

The rate increases noted in the report are a national average, and premium hikes vary from state to state, with some states seeing rises in excess of 30%. According to the report, the national average cost of car insurance is $1,668 per year.



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What’s causing rate hikes

While nobody wants to pay higher premiums, it helps to understand the factors driving the increases:

Auto parts prices — The average price of auto parts and equipment has risen 70% in the past 20 years, according to the Bureau of Labor Statistics. However, prices have more recently skyrocketed due to supply chain disruptions caused by the COVID-19 pandemic and the Russia-Ukraine war. Auto parts prices have climbed 2.9% since the pandemic began, according to the Bureau.

Higher repair costs — Cars are costing more to repair due to auto parts prices, the higher cost of labor and a shortage of skilled mechanics. As well, newer cars cost more to repair due to their increasingly sophisticated and expensive technology. Nowadays, when someone damages a bumper, they may also damage cameras and sensors mounted on and inside the bumper.

Natural disasters — Not all auto insurance claims are due to accidents or theft. Natural catastrophes like hurricanes, wildfires and floods are increasing both in number and scope. These events don’t only damage homes and businesses; they also damage and destroy vehicles. States prone to climate disasters have seen some of the steepest auto rate hikes.

More serious accidents — Car accidents are also increasing in number and the damage they cause. The number of fatal car crashes in each state has risen significantly over the last several years. From 2018 to 2022, the number of deadly accidents in the United States increased by more than 16%, from 36,835 fatal crashes to 42,795.

Auto insurers losing money — Auto insurers overall continue to lose money and are increasing rates to catch up with a number of cost drivers. State Farm, for example, reported a $13.2 billion underwriting loss for 2022, driven by both auto insurance and homeowner’s insurance losses. Allstate reported a $1 billion underwriting loss the same year.

What you can do

Depending on where you live, you may have limited options to reduce your auto insurance premiums. In some states, so many carriers are scaling back or leaving the state altogether, leaving fewer players in the market.

In general, there are a few steps you can take that may affect your premium:

Tap insurer discounts — Many insurers will offer auto insurance premium discounts for:

  • Paying your premium via automatic payments (particularly payments from bank accounts).
  • Students who maintain good grades.
  • Safe driving habits.
  • Hybrid or electric vehicles.
  • Anti-theft and safety features.
  • Completing an approved defensive driving course. 

Bundling — Insurers will often offer discounts to customers who bundle policies, like auto and homeowner’s or renters, as well as umbrella.

Raise your deductible — If you raise your deductible, the auto insurance premiums you pay will decrease. But be careful, the higher you raise it, the more “skin in the game” you have if have an accident. Remember, the deductible is what you will pay after an accident or theft before your insurance company steps in to cover the rest.

Maintain a good credit score — Insurers will offer discounts to policyholders that maintain good credit scores.

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