Why Is Car Insurance Going Up? Key Factors Explained

Key Takeaways

• Inflation is only one factor driving up auto insurance costs.
• Advanced car technology helps prevent accidents but increases repair expenses.
• Distracted driving, especially among young drivers, is on the rise, contributing to higher claim costs.

According to the U.S. Bureau of Labor Statistics (BLS), car insurance costs are up 18.6% from last year, with premiums nearly 47% higher than in March 2020. As insurers face more expensive claims, consumers are seeing significant rate hikes.

“Insurance prices must reflect the expected losses paid to policyholders,” says Dale Porfilio, chief insurance officer at the Insurance Information Institute. “When losses increase, insurance prices must increase too.”

Here’s a closer look at the factors behind rising car insurance rates and tips on how to potentially lower your premium.

Key Causes of Increasing Car Insurance Rates

Car insurance rates are rising due to a combination of factors, including the frequency and severity of claims and increasing repair costs. Together, these elements are driving up premiums across the board.

Claim Frequency and Severity

Accident rates remain high, with more severe outcomes leading to costlier claims. The National Highway Traffic Safety Administration (NHTSA) reported 42,514 fatalities in car crashes in 2022. Although this marks a slight decrease from 2021, overall accident frequency remains substantial. In 2022 alone, the U.S. saw 5,930,496 car accidents.

The 2024 LexisNexis Auto Trends Report highlights that bodily injury severity has risen 20% since 2020, while the severity of all material damages has increased by 47%. These spikes in severity result in higher costs for insurers, impacting consumer premiums.

According to Breanne Armstrong, director of insurance intelligence at J.D. Power, inattentive and riskier driving habits are contributing to these rising accident costs. LexisNexis data indicates that:

• Major speeding incidents have increased by 36% since 2019, while minor speeding incidents have risen by 15%.
• DUI violations went up by 9% in the first half of 2023 compared to the same period in 2019.
• Distracted driving violations among Gen Z drivers surged 66% since 2019 and rose 24% from 2022 to 2023. Overall, distracted driving violations increased 10% between 2022 and 2023.

Natural disasters are also a factor, though less prominent. Events like hail, floods, and wildfires can impact premiums, especially through comprehensive coverage, which covers these types of damages and is purchased by about 75% of drivers.

“Over the last five years, elevated levels of hail and flooding have impacted personal auto rates,” notes Porfilio.

Rising Vehicle Repair Costs

Inflation has had a significant impact on vehicle repair expenses. According to the BLS Consumer Price Index (CPI), car repair costs in June 2023 were nearly 20% higher than the previous year. Although inflation has recently slowed, repair costs remain elevated, with a 3.4% increase noted in July 2024.

Armstrong points to several factors driving up repair costs:

• Advanced car technology: Modern cars come equipped with advanced driver assistance systems (ADAS) like cameras and sensors, which improve safety but make repairs more complex and expensive.
• Supply chain issues: Ongoing shortages in vehicle parts continue to push up prices.
• Labor shortages: The auto repair industry faces a shortage of qualified technicians, increasing labor costs.

More advanced car technology has become a double-edged sword. Although ADAS reduces accident risks, repairs involving these systems are costly due to the need to replace and calibrate sensors and cameras. As Chris Rice, vice president of strategic business intelligence at LexisNexis Risk Solutions, explains, “Not only are there additional sensors and cameras that need to be replaced, but they all must be calibrated.”

Comparison with Other Insurance Markets

When comparing car insurance with other types of insurance, such as health or home insurance, car insurance is more heavily impacted by technology, driver behavior, and state-specific regulations. Unlike health insurance, where provider networks and treatments play a larger role, car insurance premiums are highly sensitive to vehicle advancements and driver risk factors. This distinction makes car insurance more vulnerable to fluctuations, especially as technology and driving patterns evolve rapidly.

How Car Insurance Rate Increases Vary by State

Although rate increases are affecting drivers nationwide, some states are more impacted than others due to specific local factors. Economic conditions, driving behaviors, labor costs, and even state legislation all play a role in determining insurance prices.

“States like Florida, California, and Texas, which are prone to various types of storms, have seen significant increases,” says Rice. States with high urbanization and traffic congestion, such as California and New York, experience higher accident rates, pushing up premiums.

State legislation also affects premiums. New laws that increase insurers’ claim payouts often lead to higher rates for consumers. For instance, Maryland’s House Bill 128, passed last year, requires insurers to offer enhanced underinsured motorist coverage on all new policies issued after July 1, 2024, potentially impacting premiums.

Addressing Potential Drawbacks of Rising Insurance Costs

With car insurance rates climbing, it’s natural to feel concerned about maintaining affordable coverage. While certain aspects of rising rates are unavoidable due to inflation and vehicle repair trends, understanding these factors can help you make more informed decisions. Here’s a look at how you might manage these costs.

The limited number of insurers in some regions may restrict options, especially in areas prone to natural disasters or with high accident rates. In such cases, premiums are likely to be higher due to the increased risk. Additionally, while advanced technology in vehicles contributes to safety, it also raises the cost of repairs, ultimately impacting premiums.

Furthermore, cloud-based technologies used by some insurers for assessing driving behavior and accident risk often rely on a stable internet connection. This dependence on connectivity may limit the effectiveness of usage-based insurance options for consumers in areas with unreliable internet.

How Can You Reduce Your Insurance Rate?

Fortunately, there are strategies you can implement to help lower your car insurance premium. One of the easiest ways is to get a car insurance quote from different providers, particularly when renewing a policy or experiencing life changes (such as marriage or moving). According to LexisNexis, 41% of policyholders shopped for a new policy at least once in 2023, and shopping activity has increased by 4.7% compared to the previous year.

Here are additional steps you can take to find affordable car insurance:

• Ask about discounts: Many insurers offer discounts for safe driving, low mileage, bundling policies, or being a loyal customer. Ask your insurer what options are available to you.
• Maintain a clean driving record: Traffic violations, accidents, and DUIs significantly impact your premium, so prioritizing safe driving can help keep costs down.
• Consider raising your deductible: Opting for a higher deductible may lower your premium, though it also means paying more out-of-pocket if you file a claim.
• Improve your credit score: In states where credit score affects premiums, improving your credit can result in lower rates. (Some states prohibit credit scores from influencing insurance costs, so check local regulations.)
• Explore usage-based or pay-per-mile insurance: If you drive infrequently, usage-based insurance can save you money by charging based on actual mileage and driving behavior.

Conclusion

Car insurance rates have surged due to a combination of inflation, increased accident severity, advanced vehicle technology, and regional factors. As insurers adapt to these rising costs, consumers feel the impact in the form of higher premiums. Although these factors may seem beyond your control, understanding them empowers you to make savvy choices to potentially reduce your costs.

Shopping around for competitive rates, asking about discounts, maintaining a clean driving record, and exploring alternative coverage options are all steps that can help you manage your car insurance expenses. As you navigate the changing landscape of car insurance, stay proactive about finding the right coverage at the best rate for your needs.

By staying informed and taking control of your coverage, you’re better equipped to handle rising rates and make the most of your car insurance.