Why Is Car Insurance So High Now?
Car insurance rates are more than 22% higher now than they were a year ago. That means if you were paying $150 a month, you’re now up to $183, and you’re not alone. In fact, most of us are paying so much more for car insurance that it’s currently one of the biggest drivers of inflation.
“Even wage increases won’t prevent many people from feeling the squeeze on their budgets,” says Maya Afilalo, Senior Editor and Analyst for AutoInsurance.com.
Here’s why rates have gone up so much, and some tips from our experts on how to lower your bill without jeopardizing your peace of mind.
Why Are Car Insurance Rates Going Up?
Insurance companies are paying out more in claims, which means they have to charge higher premiums to stay profitable. But it’s a bit more complex than that, and here’s why.
Accidents Are On the Rise
There are more accidents than there were a few years ago, and many are more severe, in part because we’re driving bigger vehicles, and road rage and reckless driving are on the rise. “Distracted driving has also driven accident rates to new highs,” says Ezra Peterson, Senior Director of Insurance at Way.com. “More accidents, plus more expensive accidents, means higher premiums.”
Severe Weather Events Are Growing
Due to the climate crises, the frequency of catastrophic weather events has increased, leading to more vehicle damage from floods, hail, fire and other natural disasters, says Afilalo.
Parts and Repair Labor Have Spiked
The price of repairs, auto parts and new and used vehicles have all risen during the last few years. Some of this was due to pandemic-related supply chain issues, plus a vehicle shortage. “While supply chain issues have mostly receded, the increased cost of parts and labor translates directly into higher repair costs,” says Peterson.
Car Technology Has Advanced
Today’s cars have more tech, like integrated safety devices, parking sensors and crumple zones. What was once a fender bender fixable with a little body work can now cost thousands of dollars in electronics and specialized labor to repair, says Peterson. This has caused the average payout to rise 82% over the past decade.
Medical Expenses Are Rising
Rising healthcare costs means higher payouts. It’s also becoming more common for medical expenses to breach policy limits, which translates to higher administrative rates from lengthy court processes.
Carrying Costs Are Expanding
The time from the opening of the claim to its closing has stretched, partly due to staffing limitations on the claims side and labor shortages on the repair side, says Peterson. “Claim files are taking longer, which has its ancillary costs in rental and substitute auto coverages, storage fees, etc.”
Factors That Impact Car Insurance Rates
Some factors insurance companies take into account when determining your premium include:
Driving Profile
This includes your age, years of driving experience, driving violations, previous insurance claims and, often, credit score. Factors like being a teenager or having a DUI significantly increase rates.
Location
Drivers in urban areas often have higher premiums due to higher accident and theft rates. Areas prone to severe weather and uninsured drivers also have elevated rates, says Afilalo.
Coverage Choices
Lower deductibles and higher coverage limits mean higher rates, but they also mean more financial protection if you do have an accident. “Balancing these choices depends on your financial situation and how much risk you’re willing to assume,” says Afilalo.
Vehicle Choices
Your choice of vehicle directly affects your premium, though the old wive’s tale that red cars cost more is a fallacy, says Peterson. What does matter is the cost of repair, along with accident statistics. “A vehicle with specialized systems, rare trim packages, high theft rates, and electric vehicles will likely be more to insure than a typical sedan, all due to loss probability and cost to repair,” he says.
Tips to Lower My Car Insurance Rate
- Shop around for new providers.
- Increase your deductible.
- Opt into a usage-based insurance program or telematics discount.
- Bundle home and auto policies with the same provider.
- Drop non-required coverages.
- Lower liability limits.
FAQ
What is an average car insurance rate?
Car insurance premiums vary widely because there are so many factors, but the national average is currently hovering around $2,000 to $2,500 for full coverage.
How can I compare car insurance rates?
You can get quotes directly from insurance companies. Afilabo recommends getting at least three quotes, from both major national providers and smaller regional ones. Or, you can a work with an independent insurance agency, which will do the legwork of getting multiple quotes for you.
Is car insurance legally required?
Yes, liability auto insurance, which covers damages to other vehicles if you cause an accident, is mandatory in every state except for New Hampshire. Bodily injury liability, which pays for the injuries of others if you cause an accident, is also required in every state except for Florida and New Jersey. Beyond that, in most states coverage to repair your vehicle and medical expenses is not a legal requirement, but often a wise idea, say Afilalo and Peterson.
About the Experts
- Maya Afilalo is Senior Editor and Analyst for AutoInsurance.com. She has more than 10 years of experience in research and communications, helping customers sort through auto insurance information.
- Ezra Peterson is Senior Director of Insurance at Way.com. He has more than 20 years of experience in the insurance industry.
Sources
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