Car insurance rates continue to climb as inflation, changing driver habits, labor shortages and issues with the supply chain all put pressure on car insurance premiums. A report by S&P Global found that the 10 largest insurers in the nation hiked their premiums by more than 10% in 2023. Farmers Insurance had the highest average premium increase of 17.6%. It is predicted that car insurance rates will continue to rise.
A rate increase can be an unwelcome surprise, particularly if you are already struggling to cover the cost of your car insurance.
Learn why car insurance costs are increasing, what you can do to prepare for a rate increase and how to keep your car insurance affordable.
- Car insurance rates are rising because of inflation, increased cost of parts, labor shortages and changes in driving habits.
- The all-items Consumer Price Index increased 5% from March 2022 to March 2023 before seasonal adjustment, according to the U.S. Department of Labor.
- The average transaction prices of car sales in March 2023 remain 30% higher than in March 2020.
Why are car insurance rates increasing?
Car insurance rates are going up across much of the country. This is due to inflation driving the cost of cars and repairs and increasing accidents and claims. As insurers pay more to deal with claims, they pass that increase to their customers.
In the spring of 2023, CarInsurance.com surveyed drivers across the nation. The survey found that 57% of drivers’ car insurance rates increased during the previous 12 months. Of those drivers, 43% said they believe inflation is the reason for the increase.
Here’s a closer look at the reasons car insurance rates are rising.
The all-items Consumer Price Index increased 5% from March 2022 to March 2023 before seasonal adjustment, according to the U.S. Department of Labor. The average transaction prices of car sales in March 2023 are 30% higher than they were in March 2020, according to Kelley Blue Book.
“The latest transaction data from March reveals new-vehicle prices continued a downward trend through the first quarter of 2023,” says Rebecca Rydzewski, research manager of economic and industry insights for Cox Automotive, the parent to Kelley Blue Book. “Both luxury and non-luxury prices were down month over month. We’ve been anticipating transaction price declines as inventory has steadily improved and choice has expanded. More vehicles on dealer lots – and on their competitors’ lots – means dealers simply don’t have the pricing power they did six months ago.”
When vehicle costs go up, insurance will not be far behind. Insurers must cover the cost to repair or replace a car, and if their costs increase dramatically, they will pass that cost on to policyholders.
Pricey repairs and parts
The industry has struggled with a worldwide microchip shortage, and car parts costs have 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,” says Carole Walker, executive director of the Rocky Mountain Insurance Information Association.
Repair delays also mean that insurers are paying for rental cars for more extended periods while policyholders wait for their vehicles to be repaired, costs that will eventually result in higher premiums.
In addition to supply chain issues, labor shortages make finding skilled workers to repair vehicles more challenging. 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.
Furthermore, luxury and high-end vehicles require specialized repairs completed by mechanics with specific levels of training.
How often do rates go up?
Most car insurance policies are in force for a year and 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 re-evaluates your risk factors and other factors impacting their business cost. If accidents, car thefts and claims have gone up in your 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 consider personal risk factors such as a good driving record and a vehicle loaded with advanced safety features, your rates may stay the same or decline even if your car insurance company is raising overall rates.
What do I do if my car insurance gets more expensive?
Here are a few things you can do if your car insurance has gotten more expensive.
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. And check the discounts being applied to your policy and look for coverages you may be able to drop or discounts.
For example, if you are driving an older vehicle that you would replace in an accident, consider dropping collision and comprehensive coverage on that vehicle. Your insurer may discount their coverage if your teen has left for college and can’t access a car.
“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.
This is probably one of the best ways to save on car insurance. 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.
In the 2023 drivers survey, 49% of consumers said they shopped for another insurer in the past 12 months. Of those who switched, 29% said they saved 15% by switching and 26% said they saved 10%.
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.
Ask about discounts
Insurance companies offer various 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 significant discount that insurers offer customers with multiple lines of coverage. You should get a bundling discount using the same insurer for your home and auto insurance.
Even minor car insurance discounts can add up. Sign up for electronic billing or pay for your policy annually instead of monthly, which will result in a discount. If you have changed your driving habits or vehicle, contact your insurer, as you may qualify for new discounts.
Increase your deductible
You can lower your premium if you can afford to raise your deductible. The higher your deductible, the lower your premium — insurers love it when you have more skin in the game. If you can afford it, double your deductible. But always choose a deductible you can easily afford if you have to make a claim.
Change your coverage
This one can be a bit tricky. While you want to save money, you must also ensure your vehicles are adequately insured. Look at your coverage levels and ensure they are appropriate — you need enough coverage to protect your car and other assets. State-required minimums are rarely enough coverage.
“As crash rates spike, drivers need to protect themselves and not cut corners on insurance,” Walker says.
Will rates keep increasing? And, if so, why?
While it is impossible to predict the future, car insurance rates will likely continue to increase. Premiums rarely stay the same; 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 underinsured when disaster strikes.
Resources & Methodology
Kelley Blue Book. “When Will New Car Prices Drop?” Accessed February 2024.
U.S. Department of Labor Bureau of Labor Statistics. “Consumer Price Index.” Accessed February 2024.
S&P Global. “Largest US private auto insurers boost rates by double digits in 2023.” Accessed February 2024.