Why Are Auto Insurance Premiums Rising?
Americans are dealing with sky-high insurance costs, with vehicle owners paying an average of 12.4% more on premiums in 2024, the highest rate increase over the past six years, according to Value Penguin, a Lending Tree subsidiary.
The report also noted the average cost of car insurance has risen by 29% in the last five years.
- Cost-wise, the carnage is everywhere, with the average cost of full coverage car insurance in 2024, the report noted.
- Drivers who’ve racked up traffic violations really take it on the chin, with insurance premiums booming at a 52% clip, on average.
- On the slight upside, electric vehicle insurance is moderating in 2024, but new owners will see auto insurance premiums 23% higher than for new gasoline-based vehicles.
- Car insurance rates vary depending on location, demographics, and other factors, but costs are up for virtually everyone, according to U.S. Bureau of Labor Statistics data. “Americans spent significantly more cash on car insurance in 2023 than they did in the previous year,” says Justin Yoshizawa, director and product management state at Mercury Insurance.
Insurance rates are based on various factors and operating expenses, and if those risks grow or expenses go up, then the cost of auto insurance will rise with them, Yoshizawa says. “The auto insurance industry periodically needs to adjust to account for the money paid for repairs and replacements for all customers.”
Top Reasons Why Auto Insurance Costs Are Higher in 2024
That’s the general sentiment on onerous auto insurance costs. Here are the most significant reasons why insurance premiums cost drivers so much.
Car Prices
Vehicles are more expensive to replace, with inflation driving up the cost of computer components and other parts required for repairs. “New vehicle prices are up 22%, while used vehicle prices are up 47%, according to the St. Louis Federal Reserve,” Yoshizawa notes.
Accident severity
The cost to repair or replace a vehicle and the overall number of accidents has risen significantly, which has led to rate increases.
Weather is one of the most significant factors in auto insurance, and it’s also a huge deciding factor in auto-related costs depending on where you live,” says Carlos Gonzalez, an independent agency owner at Cuspide Insurance based in Miami, Fla. “The worse the weather in your state, the more you’ll pay because the higher the chance that you will get in an accident or that it damages your car all lead to higher insurance prices.”
Whether or not drivers are to blame for the increase in accidents and subsequent higher premiums is nuanced.
“While advancements in vehicle safety technology aim to reduce accidents, distracted driving incidences remain high, contributing to the frequency of claims,” says John Crist, founder of Prestizia Insurance in Dallas, Texas. “However, it’s a blend of factors, like bad weather, larger repair costs, and inflation, that truly drives the hike in premiums and leads to higher claims and prices.
Rental car prices
Rental car inventory is low, spiking costs by roughly 26%. “Additionally, because of a nationwide shortage of mechanics, repair times are taking longer, which raises the amount of money insurance companies have to spend on rental vehicles for their customers,” Yoshizawa adds.
Stubbornly high inflation:
In the U.S., rising inflation has moderated in the past several months, but its growth rate remains high at the current rate of 3.1% as of January, 2024, with rates as high as 7% in 2022.
“It’s not only car insurance prices that are going up; everything is going up in the United States,” Gonzalez says.
Higher inflation raises auto insurance across the board. “Auto parts affect prices as the cost to repair a car is higher, and there are statistically more and more accidents,” Gonzalez notes. “Car insurance companies will pass those costs on to customers by charging a higher premium.”
While the general answer is average “inflation,” there is more to the issue.
“The main factors in increasing car prices are bad drivers, population, weather, and car repair costs,” Gonzalez says. “These all connect. If you mix in bad weather with an increasing population and everyone texting and driving, you will get higher car insurance rates. Plus, when accidents happen, fixing the damage is highly expensive.’
Miles driven:
Driving has increased since the pandemic’s start, with annual mileage 30% higher than in 2020, according to The National Safety Council.
“That can lead to higher auto repair costs — both parts and labor — which have increased due to labor shortages and supply chain issues,” Yoshizawa says. “This leads to longer repair times, which results in costlier claims.”
Auto Insurance Cost-Cutting Tips
What steps and best practices can consumers take to lower their premiums? These tips top the list.
Shop around: Prices vary from company to company, so consumers should do their homework.. “Gather at least three price quotes by calling companies directly or initiating the process online,” Yoshizawa advises.
Before buying a particular car, compare insurance costs: Car insurance rates are based on several factors, including the car’s price, the cost to repair it, and the likelihood of theft. “Many insurers also reward drivers who make the extra effort to install an anti-theft device in their vehicle,” Yoshizawa notes.
Ask for a higher deductible: A higher deductible is what policyholders pay before their insurance policy kicks in. It also means having a lower annual, biannual, or monthly insurance premium.
“The average motorist will likely only need to file a handful of claims throughout their lifetime, so increasing the deductible from $500 to $1,000 can lower premiums by 15%, on average,” Yoshizawa adds. “However, policyholders should be prepared to pay the deductible if they need to file a claim.”
Bundle insurance: Purchasing auto and homeowners policies with the same company can provide a multipolicy discount.
Seek out other discounts: Policyholders should look into what discounts they or others on their policy may qualify for with their insurance company, such as a good student discount or a good driver discount.
Go the per-mile route. Opting for pay-per-mile insurance can be cost-effective for drivers. That’s especially true for car owners who use their vehicles sparingly,” Giranda says. “Paying the annual premium upfront rather than monthly installments can also result in savings.”
When Will Car Insurance Prices Come Down?
Auto insurance price increases should eventually ease as the economy and the insurance industry stabilize.
“For this to happen, there needs to be a reduction in the factors currently driving up costs, such as the high price of auto parts and inflationary pressures,” says Paul Hadley, editor at MotorVerso.com, an auto industry news platform. “Some stabilization is anticipated in 2024, but a full easing of interest rates will likely require sustained economic improvement.”
Auto insurance prices will eventually slow down and even start to decline because of how fast technology and safety in general, is improving. “A car crash today is safer than 20 years ago,” Gonzalez says.
For prices to start declining, improvements in driving behavior, either through technology or stricter state laws on traffic violations, are needed.
“That could lead to fewer accidents, reducing the cost burden on insurers,” says Joe Giranda, director of sales and marketing at CFR Classic, a car shipping and transport company in Paramount, Cal. “Additionally, stabilization in the cost of vehicle repairs and parts, possibly through advancements in manufacturing and supply chain efficiency, could help ease the upward pressure on premiums.”
