Car Insurance Rate Increases (2024)

Car insurance is about more than fulfilling a legal requirement. It’s about managing a necessary expense to protect your financial health. With premiums on the rise, it pays to understand the reasons behind car insurance rate increases so you can better control your own expenses.

A few factors are fueling the upward trend, including inflation, supply chain disruptions, and the increasing prices of new and used vehicles. The rising cost of parts, labor, and medical expenses are affecting claim settlements as well, further complicating the economic puzzle.

Why are car insurance rates increasing?

Skyrocketing inflation and a surge in traffic accidents are two main reasons your car insurance bill has been going up. Over the past year, several insurance companies have filed requests to raise their rates — some more than once.

“Rate pressures and trends like inflation and parts and labor costs tend to change gradually, so it is likely that rates will continue to go up in the near term, though perhaps at a slower rate,” says Rich Gibson, senior casualty fellow at the American Academy of Actuaries.

Although rising prices are likely to continue, 13 states have rules in place to protect drivers from car insurance rate hikes. These states are: Alabama, California, Connecticut, Georgia, Hawaii, Louisiana, Mississippi, Nevada, New Jersey, North Carolina, Pennsylvania, Washington, and West Virginia. All have a “prior approval” system that requires regulators to approve rate changes.

California has some of the strongest protections when it comes to auto insurance pricing. Since 1989, the state saw a 5.7% drop in liability insurance costs, while the national average has gone up by 58.5%, according to the Consumer Federation of America’s Auto Insurance Regulation report.

However, the period of stability is over, as California Insurance Commissioner Ricardo Lara approved more than $1 billion in premium increases for auto insurers in 2023. Other states will likely see rates jump, too. Drivers in Connecticut, Florida, Indiana, Kansas, New Jersey, Ohio, and Tennessee can expect to pay at least 10% more for their car insurance in 2023.

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Inflation

Inflation pushed consumer prices to the highest they’ve been in 40 years, according to the U.S. Bureau of Labor Statistics.^[1] This caused rates to soar on everything from groceries and fuel to housing and healthcare, straining budgets across the country.

Insurers across the nation are also feeling the pinch of inflation. The rising prices of new and used cars, combined with the higher cost of replacement parts, have put pressure on insurers. Due to the ongoing price increases, companies are having to spend more money, which in turn leads to adjustments in car insurance premiums.

Driving behaviors

As a result of riskier driving habits, drivers are partially responsible for the higher insurance prices. Insurance companies gave back $14 billion in premiums to policyholders during the pandemic because people were driving less, according to the Insurance Information Institute.^[2] Although the refund temporarily lowered rates, driving behaviors are pushing them back up.

Drivers are back to the levels of driving frequency seen before the pandemic, according to the American Property Casualty Insurance Association (APCIA). They’re also engaging in unsafe behaviors, such as impaired driving and speeding, leading to more accidents.

“We continue to face a national crisis of traffic deaths on our roadways,” said U.S. Transportation Secretary Pete Buttigieg in an April 2023 press release.

The National Highway Traffic Safety Administration (NHTSA) reported a slightly lower fatal accident rate in 2022, about 0.3% lower than in 2021. However, 2021 saw a substantial surge in fatal accidents compared to 2020, with an alarming 10.5% increase. That marked the largest percentage jump in the NHTSA’s history.^[3]

Labor shortages

Labor shortages in the automotive industry aren’t helping either. In 2022, demand for new automotive technicians topped 155,000, including more than 56,000 unfilled positions carried over from the previous year, according to the TechForce Foundation’s 2022 Transportation Technician Supply & Demand Report.^[4] However, only 28,866 auto techs graduated in time to fill those roles.

Looking ahead, the report predicts a need for 591,000 skilled automotive techs through 2026. Unfortunately, training completions have declined 34% since 2012. This poses a problem, as the need for more skilled workers will likely continue.

In light of this, some employers are turning to higher pay to attract more workers, further driving up the price. The Federal Reserve Bank of Atlanta’s Wage Growth Tracker indicates that labor costs in all industries have been rising faster than in the previous year.^[5] Wages in the trade and transportation sector have seen even greater growth.

Supply chain issues

Semiconductors are crucial components in vehicles. Yet supply chain issues have plagued the automotive industry, leading to car insurance rate hikes. The COVID-19 pandemic, which had many employees working from home, led to a rise in demand for work-from-home technology. The surge created fierce competition among automakers for the limited chip supply.

The shortage made car repairs and production more expensive and time-consuming to complete and slowed the production of new vehicles. In 2022, the availability of new cars dropped 63%, from 3 million to 1.1 million, according to a Cox Automotive report released in January 2023. However, the supply of used vehicles saw a modest decrease of just 3.9%.

Although J.P. Morgan Research claims the semiconductor shortage is nearing its end, the effects of high demand and low supply continue to affect the auto industry. The transition to electric cars, which require more chips, adds more pressure to the supply chain. As a result, suppliers are closely managing their inventories, making obtaining lower prices even more challenging.

Claim frequency and severity

Finally, claim frequency and claim severity also contribute to the uptick in car insurance rates. When the number of claims (frequency) and the cost (severity) increase, so do premiums. However, claims aren’t just going up — they’re skyrocketing. The APCIA report reveals that insurance claims costs are surpassing rate increases.

Remember that auto insurance covers more than just car damage. It also covers medical expenses for injured people. So the higher cost of medical treatment contributes to higher claim settlement amounts. Additionally, the increased use of attorneys to resolve disputes between insurers and claimants may be increasing settlement prices and overall costs.

“Claim frequency, on the other hand, is not typically affected by inflationary factors. It is more a function of the amount of driving and driving behavior,” says Gibson. “Clearly, if you are driving more, the possibility of being in an accident increases.” And U.S. motorists are driving more, logging approximately 325 billion more miles in 2021 than in 2020.^[6]

How insurance companies calculate car insurance rates

Car insurance companies calculate rates using several factors, such as driving experience, history of tickets and accidents, the type of car you drive, location, and gender. In the end, these variables determine your assessed risk.

“The model produces a policy premium, with rating factors that indicate a higher exposure to loss generating a larger insurance premium,” says Gibson. “The upshot of this rating process is, for example, a young driver with previous claims will typically pay more than an experienced driver with no prior claims.”

Here’s a deeper look at some of the key criteria insurance companies consider when determining your policy cost.

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Age

Your age is crucial in calculating how much you pay for car insurance. Insurance companies generally put younger drivers, particularly those in their teenage years or early 20s, in a higher-risk category and charge them higher premiums. Quotes generally start to drop once drivers reach their mid-20s and can climb again after drivers enter their 60s or 70s.

Driving record

Insurers look at your driving record to determine the likelihood of future accidents and claims. Having a history of accidents, speeding tickets, or other traffic violations typically leads to higher insurance premiums. On the other hand, drivers with clean records usually enjoy lower insurance premiums.

It’s important to note that not all infractions carry the same weight, and each may affect your car insurance quote differently. A single speeding ticket could result in a modest rate increase, but something more severe, such as a DUI, can cause a dramatic jump in your rate. However, practicing safe driving habits can restore your driving record and lower your auto insurance rates.

Location

The area where you live, work, and commute substantially shapes your car insurance rates. In many cases, it comes down to your ZIP code. Cities with high population densities, for instance, tend to have more traffic, leading to a higher risk of accidents, vehicle thefts, and vandalism — all considerations that can raise the cost of your car insurance.

Car make and model

Your car’s safety rating, replacement and repair expenses, desirability to car thieves, and value factor into how much you pay for auto insurance. For instance, the latest sports car might be a crowd-pleaser, but it’s also a magnet for higher insurance prices. On the other hand, a reliable family sedan can save you money on insurance due to its safety and lower maintenance costs.

How to lower your car insurance rates

Now that you understand why car insurance costs are rising and how insurers calculate rates, it’s time to explore ways you can actively lower your premiums. Although it might seem overwhelming, each strategy only takes a few minutes to implement and can result in significant savings.

Shop around for a better price

Taking a few minutes to shop for a better price on car insurance can really pay off. You could save up to $725 or more on annual premiums by shopping around. Comparing coverage options is much easier when you use a comparison-shopping platform. You enter your information once and walk away with quotes from various insurers all at the same time.

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Ask for discounts

Insurance companies offer various discounts that can lower your premiums. Common discounts you’ll find when shopping for a policy include:

• Safe driver discounts for having a clean driving record

• Multi-vehicle discounts for insuring more than one vehicle under the same policy

• Good student discounts for yourself or your children who keep their grades up

Bundle your car and home insurance policies

Bundling your car and home insurance policies together is a popular advertising strategy, but it truly can save you money. When you buy both policies from the same insurer, you can qualify for a multi-policy discount, leading to lower premiums. If you don’t own a home, consider bundling renters insurance with your auto policy to take advantage of the benefits.

Reassess your coverage

It’s possible to unlock lower premiums by making changes to your existing insurance coverage. You don’t want to skimp on the coverage you need, but sometimes reducing it makes sense.

For example, you could consult your insurance agent to discuss more appropriate policy limits or consider removing comprehensive and collision insurance if you drive an older vehicle.

Keep in mind that it isn’t a matter of eliminating coverage outright but revisiting your policy periodically as your needs change to see if your coverage still matches your goals.

Consider usage-based insurance

Usage-based insurance, UBI for short, can help you take control of your car insurance costs. UBI matches your premiums to your driving behavior rather than lumping you in with riskier drivers who may share your demographic characteristics. As you drive, a telematics device tracks your speed, distance, and time of day when you’re on the road.

If you’re a safe driver who doesn’t spend a lot of time behind the wheel, you’re less likely to get into an accident — which means a lower risk for your insurer. As a result, the insurance company can save money, and it passes those savings on to you through cheaper premiums.

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