Feeling burned by sharp increases in your car-insurance rates over the last year? Buckle up: Insurance is only going to get more expensive.
Car-insurance premiums will continue to climb this year after rising more than 43% since January 2022, according to new research from Bankrate.
“While we hope to see rates stabilize soon, that likely won’t happen until at least 2025,” Bankrate analyst Shannon Martin said in a statement.
The average cost for full-coverage car insurance in the U.S. was $2,543 per year in January, up 26% from $2,014 in the same month of last year. In January 2022, the average rate was $1,771, according to Bankrate.
Drivers who have seen their bills shoot up include Los Angeles resident Karina Martinez. The insurance rate for her 2013 BMW jumped to $212 from $121 per month last year. “I have no accidents, no claims, no tickets. I drive minimally on weekends since I work from home,” she said.
Martinez had tried in the past to negotiate a lower rate with her insurer but was unsuccessful. “Because of my experience not being able to get any answers, I just did not challenge the rate hike in 2023. It’s futile,” she told MarketWatch. “It’s hard when everyone is raising prices. I can barely afford it with a decent income. I can’t imagine how people who are struggling financially cope.”
Why insurance rates are going up
The price increases are due in part to insurance companies reassessing their risk models to account for the higher cost of vehicle repairs and for an increase in claims due extreme weather, Martin said.
Drivers who have low credit-based insurance scores — a metric that predicts how likely a person is to file a claim, and one that is different from the credit score lenders use — are paying even more: $4,338 per year on average, according to Bankrate.
And more hikes could be coming soon, according to preliminary filings for rate increases in the first half of 2024 sent by insurers to state insurance commissioners, said Stephen Crewdson, a senior director in the global insurance intelligence group at J.D. Power.
If insurers follow through with the proposed rates, those increases could be “as aggressive” as last year’s, he said, noting that 2023 was already a “watershed year” for premium hikes. “It was unlike what we’ve seen before in the industry,” Crewdson said.
Because car owners are required to carry insurance in almost every U.S. state, insurance companies have to get regulatory approval to increase their rates.
Paul Newsome, a managing director and senior research analyst at Piper Sandler who covers the insurance sector, said rate hikes have been primarily driven by insurers’ own rising costs — from pricier cars and car parts to a shortage of body-shop workers, all of which has made repairs more expensive and time-consuming.
Many insurers need to increase their premiums to recoup the billions of dollars they lost over the last two years, he said.
“They have been suffering huge losses until basically this quarter,” he said. “The price increases for a lot of insurance companies are not optional.”
What the insurance industry is saying about rate hikes
When asked whether car-insurance rates are expected to go up again this year, a representative for the Insurance Information Institute, a group that represents the industry, did not answer the question directly but said car insurers have been coping with poor financials for the last few years.
“There’s no question the U.S. personal-auto-insurance market is being hit hard in this inflationary environment,” said Scott Holeman, a spokesperson for the organization. “But in addition to inflation, we’re also seeing a dramatic increase in accidents on American roadways.”
Jeffrey Brewer, a spokesperson for the American Property Casualty Insurance Association, said price increases for car repairs and replacement parts won’t let up any time soon.
“Today, auto insurance premiums are on the rise for the simple reason that the cost of the things that auto insurance pays for has been rising faster than premiums,” he wrote in a statement. “All indicators suggest elevated auto repair and replacement costs will stretch well into 2024 and potentially beyond.”
Losses for insurance companies have been increasing because there are more crashes on roadways, and more crashes that are severe, Holeman said. Fatalities and injuries on the road are also leading to more lawsuits, which translate into higher costs for insurers. “That litigation has a direct impact on insurance premiums,” Holeman said. In addition, supply-chain problems are affecting the cost of cars and replacement parts, and cars with more advanced technology are more expensive to repair, he said.
Consumers are feeling these effects as well. Rising costs for vehicles, insurance, fuel and repairs brought the monthly expense of owning a car to $1,015 in 2023, which adds up to $12,182 per year, up more than 13% year over year, according to AAA. Households need to earn about $100,000 a year to afford a new car, MarketWatch reported last fall.
More drivers are skipping car insurance altogether
While car ownership in the U.S. remains high, the rising costs have led to an increase in the number of uninsured drivers. The number of households that own a car but do not have car insurance rose to 5.7% in the first half of 2023, up from 5.3% in the second half of 2022, according to J.D. Power surveys. While that share decreased slightly at the end of last year, it rebounded to 6.2% in January, Crewdson told MarketWatch.
Uninsured drivers, who can face fines for not having coverage, also assume a lot of additional risk. Those who are at fault in a crash may need to cover the other driver’s and any passengers’ losses, including medical expenses, said Crewdson. If drivers can’t cover these expenses out of pocket, the dispute may be litigated in court.
Bankrate analyzed premiums in the 26 largest metropolitan areas and found that drivers in the Detroit area are paying 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 end of the spectrum, drivers in the Seattle area pay the least as a share of income ($1,759), followed by Boston ($2,094), Washington, D.C. ($2,430), Portland, Ore. ($1,976) and Minneapolis ($2,044).
Doug Heller, director of insurance at the Consumer Federation of America, said he’s worried that much higher premiums could stick around even after insurers’ costs level out again.
He noted that companies were slow to lower rates or otherwise pass on gains to customers in the early days of the pandemic, when many drivers stayed off the roads and the costs of covering claims dropped, boosting insurers’ margins.
Insurance companies pocketed a good chunk of that windfall, he said — although some insurers did give drivers rebates and other breaks on insurance costs during the pandemic.
“It’s a bit of a heads we win, tails you lose,” he said. “I’m a little concerned we’re going to be stuck with high prices even as the cost associated with insurance policies goes down.”
With rates increasing so significantly, more customers may be driven to reduce their coverage or forgo it completely, Heller said.
“I’m worried that these prices are going to mean more dangerous, less protected roads,” he said.
4 ways to lower your car-insurance premium
No. 1: Shop around — often.
This is probably the most important thing you can do to lower your insurance costs — especially if you’ve been insured through the same company for a long time, Heller said.
Typically, he recommends consumers shop around for a better car-insurance policy every two to three years. But nowadays, you’re better off doing it once a year, or every time your policy renews.
“It’s not going to relieve all the pain,” he said, but in some cases it can help you save as much as 30% on your coverage.
No. 2: Check the mileage your insurer has on file.
Heller also suggested calling your insurance company to check that their estimate of your annual mileage is still accurate.
Mileage is one of many factors insurance companies take into account when setting your rate. If you’re driving less these days, that could lower your premium — although just how much mileage is factored into your premium depends on your insurer.
No. 3: If you own your home, bundle your home and car insurance.
“Many insurers will give you a break if you buy 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 longtime 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 meet your deductible, but if you can afford to pay a higher deductible in the event that you are involved in an accident, this can help lower your premiums substantially, according to the Insurance Information Institute, which provides a number of other suggestions as well.
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