Auto insurance is a legal requirement in nearly every state. Unfortunately, drivers nationwide have seen car insurance rates climb over the past few years. According to the U.S. Bureau of Labor Statistics, motor vehicle insurance increased 20.6% from December 2022 to December 2023. There are various reasons for the drastic increase, such as post-pandemic supply issues and an increase in labor costs. Still, it’s understandable for drivers with a clean record to question why their rate may have increased despite not being involved in any accidents. To help you understand the landscape, here are a few reasons why you may have recently seen an increase in auto insurance costs.
Factors Contributing to an Increase in Auto Insurance
1. Car and Labor Costs
The average cost of a new car was $47,338 in January 2024. Although this figure represents a slight decrease from a December 2022 peak of $48,516, the current average cost for a new vehicle is still up more than 21% since the start of 2020. The average cost for a used car as of January 2024 was $27,297, representing a 32% increase from pre-pandemic averages. What does this have to do with an increase in car insurance rates? When cars cost more to purchase, the cost to repair or replace a vehicle also increases. Because the value of your car influences insurance rates, among other things, this can lead to an increase in your premium.
Although inflation can be cited as a reason for soaring car prices, it’s also important to note that new cars in 2024 come with many more features than they did five years ago. Safety features such as backup cameras, blindside assistance, and adaptive headlights are now standard and no longer only on higher-end trims. Although these features are for the greater good, they increase the cost of fully repairing a vehicle after an accident.
A decrease in professional mechanics is also why repair costs have soared recently. According to the latest data from TechForce Foundation, a nonprofit that advocates for technical careers, the nation still needs some 795,000 new automotive professionals to meet the ongoing demand over the next five years. Furthermore, according to Cox Automotive, auto dealers have ranked “service” as the area currently experiencing the most staffing issues.
2. Car Accidents .
It’s common knowledge that filing a claim for an accident you cause can increase your auto insurance premium because you’ll be viewed as a riskier driver than someone with a clean record. However, accidents that other people are involved in can also increase premiums. For example, drivers in busy metropolitan areas are likely to pay more for insurance than those in rural areas. The reason is drivers are more likely to get into a car accident since there are more cars on the road.
Insurance is risk sharing. When the frequency or severity of claims increases, the insurer must raise rates even when most individuals insured do not have claims.
3. More Cars on The Road
When there are more drivers on the road, there is a higher chance of accidents. Since the pandemic, the unemployment rate has significantly dropped. With that, there are a greater number of people on the road driving to and from work. And with a lower unemployment rate, more individuals presumably drive for leisure or purchase higher-end vehicles. According to the FRED Economic Data of the St. Louis Fed, the number of miles driven has increased by 13% since the start of the pandemic.
Can Insurers Charge Whatever They Want?
When you face a rate increase, it’s easy to assume that auto insurers are raising rates for pure financial gain. However, that isn’t necessarily the case. Like other industries, insurance is heavily regulated to ensure fair premiums. According to the National Association of Insurance Commissioners, insurance providers must have enough funds to make good on promises and treat policyholders fairly. Each state has its own Department of Insurance that regulates the insurers that do business in their state. Depending on the state, insurers must file a request to increase premiums that the state must approve before setting new rates. California, for example, has recently approved increases for major carriers such as State Farm (21%), Geico (12.8%), and Allstate (30%).
Ways to Help You Save on Car Insurance
Despite the ongoing increases, there are still ways for you to help lower your overall insurance costs. Insurers rely on many factors to determine their premiums, so it’s possible to find a carrier offering the same coverage for a lower rate. Here are a few tips to help you reduce the amount you pay for insurance:
- Compare quotes online from multiple providers: Because insurers weigh various factors differently, you may find a better rate by regularly comparing quotes from different insurers.
- Choose the right car: As mentioned, the vehicle you drive can affect your insurance rate. The more expensive your car is, the more you’ll pay to insure it adequately. Although this shouldn’t be the only factor determining the vehicle you drive, you must keep it insured, so understanding your potential rate before purchasing is a good idea.
- Choose the right coverage and deductible amount: If you can do so, opting for a higher deductible can help reduce your premium. Remember, your deductible represents how much you’ll pay out of pocket before your insurer steps in, so be sure to adjust within your financial means. If you have an older vehicle, you may be able to cut some costs by reviewing your policy and dropping coverages such as collision and comprehensive coverage. However, you must pay for any repairs out of pocket if you do this.
- Bundle your auto and residential coverages: Many insurers offer discounted rates for customers who bundle their auto and residential insurance with the same company. Still, it’s best if you always compare your premiums with other providers to ensure you get the best rate.
- Take advantage of discounts: Insurance companies provide various discounts you may qualify for by simply being you. Typical discounts include good driver discounts, paperless discounts, pay-in-full discounts, and telematic usage discounts.
AIS Is Here to Help
At AIS, we understand that navigating the insurance marketplace can seem overwhelming with so many providers and coverage types. Our team of insurance specialists are ready and willing to help answer any questions you may have regarding an auto insurance rate increase, coverage types, and more. Although rate increases are a part of the insurance industry, there are ways you can help prevent yourself from paying more for insurance than you need to. We have over 55 years of experience helping our customers find and secure insurance policies that work best for them. Call us today at (888) 772-4247 to speak to an insurance specialist.
The information in this article is obtained from various sources and offered for educational purposes only. Furthermore, it should not replace the advice of a qualified professional. The definitions, terms, and coverage in a given policy may be different than those suggested here. No warranty or appropriateness for a specific purpose is expressed or implied.
