Car insurance rates for many drivers will be climbing this year as inflation, changing driver habits, labor shortages and issues with the supply chain all put pressure on car insurance premiums. A rate increase can be an unwelcome surprise, particularly if you are already struggling to cover the cost of your car insurance.

What follows is a look at why car insurance costs are increasing, what you can do to prepare for a rate increase and some tips to help you keep your car insurance affordable.

Key Highlights
  • Allstate has recently raised its rates for many drivers by an average of 7.1%.
  • The major reasons car insurance rates are rising are inflation, increase in the cost of parts, labor shortages and change in driving habits during the pandemics.
  • As pandemic has changed the driving habits, NHTSA reported a 18.4% increase in fatal crashes during the first six months of 2021, which is the highest percentage increase ever.

Why are car insurance rates increasing?

Car insurance rates are going up across much of the country. This is due to several factors such as inflation pushing up the cost of cars and car repairs, and an increase in accidents and claims from the lows seen during pandemic lockdowns.

How much your rate goes up will depend on a variety of factors as well as what car insurance company is writing your policy. Some insurers are already calling for rate increases. Allstate recently said it's raising rates for many drivers by an average of 7.1%.

How often do rates go up?

Most car insurance policies are in force for a year and then must be renewed. Once your renewal date comes up, there is a good chance your rates will change.

When your policy expires, your insurance company reevaluates your risk factors as well as other factors that impact their cost of doing business. If accidents, car thefts and claims have gone up in your general area, it could result in a premium increase.

And as inflation pushes up the cost to repair or replace vehicles, insurers will pass those costs on to their customers.

But rates don’t go up for everyone. Because insurance rates take into account personal risk factors such as a good driving record and a vehicle that is loaded with advanced safety features your rates may stay the same or decline even if your car insurance company is raising overall rates.

The national average for a car insurance policy in 2020 was $1,904, according to our data. But that dropped 3% in 2021 to an average cost of $1,839. Last year was one of the few years where car insurance costs went down.

This was because they were experiencing far fewer claims as the pandemic changed driving habits, with many customers driving dramatically fewer miles.

Why are rates going up now?

Car insurance rates are headed up for a variety of reasons. Everything from inflation, labor and part shortages to driving habits that changed for the worse during the pandemic are making car insurance more expensive. As insurers pay more to deal with claims, they pass that increase to their customers.

 Carole Walker - Executive Director at the Rocky Mountain Insurance Association
Carole Walker
Executive Director at the Rocky Mountain Insurance Association.

Carole Walker says, with new and used cars in short supply, along with parts, this has a major impact on the costs to replace and time to repair vehicles, which in turn adds up to increased insurance claims costs and higher insurance rates.

Here's a closer look at the reasons car insurance rates are rising:

Inflation

The Consumer Price Index rose 7% between December 2020 and December 2021, which is the largest 12-month gain since June 1982, according to the Labor Department. The price of new and used vehicles rose even more, with new car and truck prices rising by 11.8% while used car and truck prices were up 37.3%, according to the Anderson Economic Group.

When the cost of vehicles goes up, the cost of insurance will not be far behind. Insurers must cover the cost to repair or replace a vehicle, and if their costs to do that increase dramatically, they are going to pass that cost on to policyholders.

And it’s not just vehicle prices that have been hit by inflation, healthcare costs have risen as well. Health care costs were expected to increase by 8.4% in 2021, according to the consulting firm Milliman. As insurers have to pay more to cover medical costs after an accident, the cost of insurance is bound to rise.

The cost of parts is rising

As the supply chain continues to struggle with the shipment of computer chips and other parts, the cost of car parts has also risen. Higher prices for parts push up the cost of repairs for insurance companies. These additional costs are passed to policyholders via rate increases.

“The high price of high-tech in cars was already affecting repair costs, but these current extreme marketplace conditions have pushed insurers to increase premiums as they also try to keep up with spiking crashes and catastrophic events.

This is also complicated by a shortage of rental cars and longer time in a rental after a crash due to lengthier repair and replacement times,” Walker says.

Repair delays also mean that insurers are paying for rental cars for longer periods of time while policyholders wait for their vehicle to be repaired, costs that will eventually result in higher premiums.

Labor shortages

In addition to supply chain issues, labor shortages are making it more difficult to find skilled workers to repair vehicles. When the pandemic first hit, auto dealers and repair shops laid off workers, some of which never returned to the industry after finding new jobs elsewhere.

The Great Resignation has not helped the situation with more than 4.5 million people leaving their jobs in November 2021, this was an all-time high according to the Bureau of Labor Statistics. As dealerships and repair shops struggle to find employees, the cost of repairs has gone up.

Driving habits changed during the pandemic

The pandemic changed driving habits and not for the better.

As drivers returned to the road after lockdowns, they were a bit more reckless. According to the National Highway Traffic Safety Administration (NHTSA), in 2020 more than 38,000 people died in auto accidents, a 7% increase from 2019 and the highest number of deaths since 2007.

The NHTSA reported a 18.4% increase in fatal crashes during the first six months of 2021, which is the highest percentage increase ever.

Bad driving leads to more accidents and insurance claims, which results in higher premiums for everyone as insurers must cover the cost of paying out more claims.

Read Our Guide on How Much Does Insurance go up After an Accident?

Will rates go up for me even though I have no accidents?

Unfortunately, in most cases, the answer to this question is yes. Insurance premiums reflect a variety of risk factors. While many of these factors revolve around your personal details such as the car you own, your driving history, age, and marital status, insurers also consider factors that impact all drivers.

Insurers look at the theft rates in the city you live in as well as your actual neighborhood. They keep an eye on crash and claim rates and factor in your local repair costs, all of which can push your premium up or down, regardless of your personal risk factors and claim record.

On the bright side, insurance rate increases must be approved by state regulators so most rate increases will be in the single digits.

What are the Other Factors that Affect Car Insurance Rates?

What can I do about a rate increase?

Here are a few tips if your car insurance rates go up:

Review your policy

Before you start shopping for new insurance, review your current policy. Note down your coverage types, coverage levels as well as deductibles.

Check the discounts being applied to your policy and look for coverages you may be able to drop or discounts.

As an example, if you are driving an older vehicle that you would replace if you were in an accident, consider dropping collision and comprehensive coverage on that vehicle. If your teen has left for college and doesn’t have access to a car, your insurer may discount their coverage.

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“Now is an important time to do an insurance check-up to review coverages and ways to save with your insurance professional,” Carole Walker says.

Shop around

This is probably one of the best ways to save on car insurance. Insurance companies rate risk differently, which can result in dramatic differences in premium quotes.

Insurance companies have proprietary risk-assessment systems so while one insurer may not like your risk factors, another may be happy to offer coverage at a much lower rate.

Shop your coverage on an annual basis or anytime your premium goes up. Always make sure you are comparing apples to apples when it comes to coverage levels and deductibles.

Compare Car Insurance Quotes from 25+ Companies with Rate Calculator

Ask about additional discounts

Insurance companies offer a wide variety of discounts that can dramatically reduce your premium.

“Ask about all available discounts from vehicle safety to higher deductibles and multi-lines for bundling auto policies, homeowners, renters insurance,” Walker says.

Bundling is a major discount that insurers offer to customers who carry multiple lines of coverage with them. If you use the same insurer for your home and auto insurance, you should be getting a bundling discount.

Even small car insurance discounts can add up. Consider moving to electronic billing or paying for your policy annually instead of monthly, both of which will result in a discount. If you have made any changes to your driving habits or vehicle, be sure to contact your insurer as you may qualify for new discounts.

Up your deductible

If you can afford to raise your deductible you can lower your premium. The higher your deductible, the lower your premium as insurers love it when you have more skin in the game.

If you can afford it, double your deductible. But always choose a deductible that you can easily afford in case you have to make a claim on your policy.

Why Raising your Car Insurance Deductible Lower your Rates?

Change your coverage

This one can be a bit tricky. While you want to save money, you also need to make sure your vehicles are properly insured. “As crash rates spike, drivers need to protect themselves and not cut corners on insurance,” Walker says.

Look at your coverage levels and make sure they are appropriate for your current situation. Always make sure you have enough coverage to protect your vehicle and other assets. State required minimums are almost never enough coverage if you are involved in a serious accident.

Read our expert's recommendation on How to lower car insurance rates?

Will rates keep increasing? And, if so, why?

While it is impossible to predict the future, car insurance rates will most likely continue to increase in the future. Premiums rarely stay the same and, in most cases, they tend to rise from year to year.

Tweaking your coverages and risk factors can help bring your premiums down. Raising your deductible while lowering your coverage levels can result in a more affordable premium. But it’s never advisable to go overboard when cutting back on coverage levels, you don’t want to be under insured when disaster strikes.