Why car insurance rates are increasing so fast
The major drivers behind this year’s surging premiums are increasing car repair costs, more frequent and severe climate change-related natural disasters in some regions, and the cost of claims versus policyholders’ premiums.
Insurify based projections on its data of more than 79 million car insurance quotes sourced directly from partnering insurance companies.
1. Car insurance companies are losing money
Car insurance companies are experiencing record-high loss ratios — meaning they’re spending more money paying out claims than they’re collecting in premiums.
Let’s say that in a year, an insurer paid $600 for a policyholder’s insurance claim, but that policyholder paid $2,640 in annual premiums. For that year, the insurer’s loss ratio for that car insurance policy is $600 divided by $2,640, or 0.227, which is roughly 23%. As long as insurance companies’ loss ratios are less than 100%, they’re making profits from their policies.
However, the property and casualty insurance sector reported a combined net loss ratio of 111.8% for 2022, which means insurance companies collectively paid more in claims than they earned in premiums for the year. To offset this loss, insurance companies increase premiums.
2. Car repair costs are higher than ever
The cost of car maintenance and repair is rising, which is one of the many factors that affect car insurance premiums. Car repair costs are 13.5% higher in 2023 than in 2022. This is mostly due to mechanic shortages, hard-to-repair vehicle technology, and increasing average vehicle ages.
“Repair expenditures affect insurance rates because they raise the financial risk for the insurer,” says Emile Ashikyan, marketing analyst at Infopay Inc. “To counterbalance these rising expenditures, automobile insurance premiums often rise, increasing consumers’ insurance prices.”
Where you live, including the state, city, and ZIP code, affects your car insurance premiums. Areas with frequent severe weather events, including floods, snowstorms, tropical storms, and wildfires, typically have higher rates than areas with milder weather.
“The frequency and severity of natural disasters have led to some geographical areas experiencing different types of weather events from what they’ve seen before. More vehicles are being caught and destroyed in fires and floods, and ice storms are more frequent, increasing the likelihood of collisions,” says Betsy Stella, vice president of partnerships at Insurify.
“This has led to auto insurers paying a higher number of — and a higher price for — customer claims. As a result, customers are seeing higher premiums as insurers increase prices to cover these losses.”
Key takeaways from Insurify’s end-of-year auto insurance report
New York has the highest car insurance rates in the U.S., with an average full-coverage policy costing $3,374 annually at the time of publication.
Full-coverage auto insurance rates increased by 24% in 2023, influenced by rising repair costs, severe weather, and an increase in car accidents that contributed to record insurer losses.
Insurify predicts rate hikes will slow down and car insurance costs will rise by 7% in 2024 — but that’s still almost double the median year-over-year increase.
Lowering coverage limits and increasing deductibles are the most common ways drivers reduced their premiums in 2023, according to an Insurify survey.
Rising insurance costs hit low-income states hard. Only four of the 14 states that pay the highest percentage of earnings toward coverage have median household incomes above the U.S. average.