Auto insurance premiums have risen faster than almost all other common consumer costs, and the painful price increases are likely to continue into 2024.
The Consumer Price Index (CPI) shows that prices for auto insurance have increased 20.6% over the past year, far outpacing the general inflation rate and exceeding the inflation rate for virtually any other significant expense category.
Car insurance costs have risen because car prices have risen during the pandemic, meaning vehicles are more expensive to replace or repair if they are damaged in accidents. Dangerous driving behavior has also increased, leading to more accidents and more serious accidents. Insurance companies must pass these costs on to their customers, but it often takes a long time to get rate increases approved by state regulators.
This lag is one reason auto insurance prices continue to rise, even as inflation overall is easing.
“Many of the big rate increases were delayed from 2020 to 2024, and we’re finally seeing them now,” says Sean Scaturro, director of consulting at USAA.
Allstate, for example, guaranteed auto insurance rate increases in New York (14.6%), California (30%) and New Jersey (17%) that took effect in December. In 2024, the company is pushing for rate increases in at least 10 states, including additional increases in New York and Jersey, executives said in a recent earnings call.
According to a December report from AM Best, personal auto insurance companies posted underwriting losses of $33.1 billion in 2022 and “results continued to worsen in the first half of 2023.” A big part of the problem is that the average cost per claim has risen to $11,102 after jumping 11% in a year.
Insurance companies are trying to correct course and as a result drivers are seeing their premiums skyrocket.
How much will car insurance prices increase this year?
In 2024, Scaturro expects fewer major premium increases than last year, considering that many insurers have raised rates “pretty dramatically” in recent months. However, if your premium hasn’t increased yet, an increase may be on the way.
Laura Longero, executive director of CarInsurance.com, says it’s difficult to predict how much premiums will increase in 2024, but their best guess is about 10%. It wouldn’t be as bad as in 2022 or 2023, though it would still be painful for consumers, who are already paying an average of $1,765 a year for full coverage insurance, according to an August report from AAA. This is a sharp increase from an average of $1,194 in 2019.
According to Jerry, an insurance shopping app, auto premiums have increased 43% over the past three years and “there is no sign that insurers are done with large rate increases.” By mid-2024, most insurers will have adequate pricing and premium costs will stabilize, Jerry predicts.
“As inflation declines and insurers see rate increase approvals start to roll in, loss ratios will decline and we will begin to enter a period of better price stability for consumers,” says Josh Damico, vice president of insurance operations by Jerry.
Why is car insurance so expensive?
Rising prices of auto repairs and more expensive car rentals are among the issues contributing to rising auto insurance costs.
If you are involved in an accident, the parts needed to repair your car are likely much more expensive now than before the pandemic. Even the rental car that your insurance pays for you to drive while your vehicle is in the shop probably costs more. Additionally, you may need to drive the rental for a longer period of time if there is a supply shortage for the part or a labor shortage that impacts repair times.
“This all comes together with some really bad driving behavior that we’ve seen during COVID that hasn’t been corrected,” says Tony Cotto, director of auto policy and underwriting at the National Association of Mutual Insurance Companies. “We have record levels of collision severity.”
The good news is that there are signs that some of the inflationary pressures on auto insurance will ease this year. Used car prices are falling and new car prices are finally stabilizing. This is very important because insurance companies can be involved in replacing your car or another person’s vehicle after an accident.
According to Longero, the inflation of body repair costs is also slowing down. Prices have risen just 4.3% over the past year, down from a rise of about 12% in 2022, according to CPI data.
Finally, insurance companies should benefit from the general cooling of inflation because some of the reasons their costs have risen are not related to cars and driving. Insurers, for example, have been hit by the rising costs of legal services and medical care, Cotto explains. Rising labor costs have also increased their expenses.
How to pay less for car insurance
The best way to get a good deal on car insurance is to shop around and change car insurance companies if you find that you are paying more than you should. Longero recommends comparing quotes every six months to a year and encourages getting rates from a minimum of three companies to ensure you get a good deal.
Purchasing car insurance is especially important if you have blemishes on your record. This is because companies penalize accidents and tickets differently, so you may get a wider range of quotes.
Scaturro also encourages drivers to explore discounts. For example, insurance companies often reward customers for having safety features in their cars, and there may be a deal if you choose a usage-based auto insurance program that monitors things like distracted driving and hard braking.
Other tips for reducing your car insurance premiums include increasing your deductible, bundling your auto insurance coverage with your home insurance for a discount and checking with your insurance company to make sure you’re not paying for more mileage than you’re actually driving.
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