Anyone already feeling burned by steep auto insurance rate increases over the past year should buckle up: It’s only getting more expensive.
U.S. auto insurance premiums will continue to rise this year after rising more than 43% since January 2022, new research from Bankrate shows.
“While we hope to see rates stabilize soon, that likely won’t happen until at least 2025,” Bankrate analyst Shannon Martin said in a note.
According to Bankrate, the national average cost for full coverage auto insurance was $2,543 per year in January, up 26% from $2,014 in January 2023 and $1,771 in January 2022.
“I can barely afford it on a decent income”
Among those who have seen their bills rise is Los Angeles resident Karina Martinez. Her car insurance jumped to $212 from $121 a month for her 2013 BMW last year. “I have no accidents, no claims, no fines. I drive very little on weekends since I work from home,” she said.
Martínez had previously tried to negotiate a lower rate with his insurer, but was unsuccessful. “Because in my experience I couldn’t get any response, I didn’t challenge the rate hike in 2023. It’s useless,” he told MarketWatch. As premiums continue to increase, he said, “It’s difficult when everyone raises prices. I can barely afford it on a decent income, I can’t imagine how people who have financial difficulties manage.”
Why insurance rates are rising
The price increases are partly because insurance companies are re-evaluating their risk models to account for increased claims due to higher vehicle repair costs and extreme weather conditions, Martin said.
Drivers who have a low credit-based insurance score (which predicts how likely you are to file a claim and is different from the credit score lenders use) are paying even more: $4,338 a year on average, according to Bankrate .
Further increases could come soon, according to preliminary documents on rate increases in the first half of 2024 submitted by insurers to state insurance commissioners, said Stephen Crewdson, senior director of J.D. Power’s global insurance intelligence group.
If insurers kept their proposed rates, they could be as “aggressive” as last year, which was already a “watershed year” for premium increases, he said.
“It was different than what we’ve seen before in the industry” in more than two decades, Crewdson said.
Because auto insurance is a mandatory purchase in nearly every state in the United States, insurance companies must obtain regulatory approval to increase their rates.
Paul Newsome, a managing director and senior research analyst at Piper Sandler who covers the insurance sector, said the rate increases were driven primarily by rising costs at auto insurers – from more expensive cars and parts to shortages of body shop workers which makes repairs more expensive and time consuming.
Many insurers need to raise premiums to recoup the billions lost over the past two years, he said.
“They had huge losses pretty much up until this quarter,” he said. «For many insurance companies, price increases are not optional.»
Asked whether auto insurance rates are expected to rise again this year, a representative from the Insurance Information Institute, a group representing the insurance industry, did not directly answer the question, but said auto insurers are facing financial difficulties for the current period. in the last few years.
“There is no question, the U.S. personal auto insurance market has been hit hard in this inflationary environment,” said Scott Holeman, a spokesman for III. “But in addition to inflation, we are also seeing a dramatic increase in accidents on American roads.”
Losses for insurance companies have increased because there are more accidents, and more serious accidents, Holeman said. Fatalities and injuries on the road increasingly lead to lawsuits, which translate into higher costs for insurers. “Such litigation has a direct impact on insurance premiums,” Holeman said. Additionally, supply chain problems continue to mean high costs for cars and their replacement parts, and cars with more advanced technology are more expensive to repair, she said.
Consumers are also feeling these effects. According to AAA, rising costs for vehicles, insurance, fuel and repairs have pushed the monthly expense of owning a car to $1,015 in 2023, for a total of $12,182 per year, up more than 13% on annual basis. A family now needs to earn about $100,000 a year to afford a new car, MarketWatch reported last fall.
More and more drivers are giving up car insurance altogether
While the number of automobiles owned in the United States remains high, the rising cost of ownership has led to an increase in uninsured drivers. According to J.D. Power surveys, the number of households who own a car but do not have auto insurance rose to 5.7% in the first half of 2023 from 5.3% in the second half of 2022. While that share is declined slightly late last year, rebounding to 6.2% in January, Crewdson told MarketWatch.
Uninsured drivers can face fines for not having coverage and take on many additional risks. Those at fault may have to cover the losses of the other driver and any other passengers, including medical expenses, Crewdson said. If drivers fail to cover these expenses out of pocket, the dispute can be taken to court.
Bankrate analyzed premiums in the 26 largest metro areas and found that drivers in the Detroit area pay the most for insurance as a percentage of household income ($5,687), followed by Miami ($4,213), Tampa ($ 4,078), Philadelphia ($4,753), and Las Vegas ($3,626).
On the other hand, drivers in the Seattle metro area pay the least as a share of income ($1,759), followed by Boston ($2,094), Washington DC ($2,430), Portland ($1,976) and Minneapolis ($2,044) .
Doug Heller, director of insurance at the Consumer Federation of America, said he is concerned that much higher premiums could persist even after insurers’ costs stabilize again.
He noted that companies were slow to lower rates or otherwise pass on earnings to customers in the early days of the pandemic, when many drivers stayed off the roads and claims coverage costs fell, boosting insurers’ margins. insurers.
Insurance companies pocketed a good portion of that windfall, he said, even as some insurers gave driver discounts and other reductions in insurance costs during the pandemic.
“It’s kind of like heads we win, tails you lose,” he said. “I’m a little worried that we’ll be stuck with high prices even if the cost associated with insurance policies goes down.”
With such a significant increase in rates, more customers will feel forced to reduce their auto coverage or give it up entirely, Heller said.
“I am concerned that these prices will mean more dangerous and less protected roads,” he said.
Tips for lowering your car insurance premium
No. 1: Look around, often.
This is probably the most important thing you can do to reduce your insurance costs, especially if you’ve been insured through the same company for a long time, Heller said.
He generally advises consumers to look for a better auto insurance policy every two to three years. But nowadays, it’s better to do it once a year or every time you renew your policy.
“It won’t relieve all the pain,” he said, but in some cases it will help you save up to 30% on coverage.
No. 2: Check the mileage recorded by your insurer.
Heller also suggested calling your insurance company to verify that your annual mileage estimate is still accurate.
Mileage is one of many factors that insurance companies take into consideration when setting your rate. If you drive less these days, this could reduce your premium, although how much mileage is factored into your premium depends on your insurer.
No. 3: If you also own your home, bundle your home and auto insurance.
“Many insurers will give you a break if you purchase two or more types of insurance,” according to the Insurance Information Institute. Drivers can also get a reduction by having more than one car insured with the same insurer, and some get lower rates as long-time customers (but, again, shop around often).
No. 4: Ask for a higher deductible.
You’re rolling the dice a bit here since your insurance won’t kick in until you reach your deductible, but if you can afford to pay a higher deductible in case you have an accident, this can help you substantially reduce your premiums , according to the Insurance Information Institute, which provides a number of other tips here.
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