Why Your Car Insurance Rates Continues to Rise and What You Can Do About It

Car insurance rates rose another 1.3 percent according to September’s Consumer Price Index (CPI). That pushes the increase in premiums over 20 percent for the year. However, there are steps you can take to lessen the impact.

The first half of this year saw auto insurance rates increase 17 percent over last year, according to insuretech firm Insurify. Further, the company predicts rates will climb another four percent by year’s end.

The average American pays an annual auto premium of $1,668, according to the report. Insurify estimates that it amounts to 2.4 percent of average household income. However, other research puts the figures even higher.

Bankrate says the average policy runs $2,014 and Forbes Advisor puts the figure at $2,150 a year.

Why Rates Are Rising

There is not a single culprit causing the increase in car insurance rates. Rather it is a combination of factors.

One of the primary reasons rates are up in 2023 is that property and casualty insurance companies suffered losses unseen for more than a decade.

Overall, the industry sustained an underwriting loss of 26.9 billion last year.

The measure of profits and losses by property and casualty companies is called the combined ratio. If that figure is 100 or above it means a company paid out more than it brought in. The net combined ratio of all companies for 2022 was 111.8 percent.

“Auto insurance rates across the U.S. are escalating for a number of reasons,” Mark Friedlander, director of communications for the Insurance Information Institute, told Insurify. “Namely, current insurance rates are not keeping up with insurer losses.”

Rising Repair Costs

Part of the reason insurer’s rates are not keeping up with losses is the increasing cost of vehicle repairs.

The cost of fixing a car is up about 20 percent so far this year, according to recent reports from the Bureau of Labor Statistics. The climb in costs is due to a mix of inflation and supply problems.

The average cost of auto repair is $548.32, according to Kelly Blue Book, an automobile research firm. However, not all cost increases can be laid at the doorstep of supply issues and inflation.

Climate Change

Television coverage of natural disasters often shows houses demolished or swept away by tornados, hurricanes, wildfires, or flooding. However, these environmental events also destroy vehicles,

“The frequency and severity of natural disasters have led to some geographical areas experiencing different types of weather events from what they’ve seen before,” said Betsy Stella, VP of carrier management and operations at Insurify.

“More vehicles are being caught and destroyed in fires and floods, and ice is sticking around longer, increasing the likelihood of collisions. This has led to auto insurers paying a higher number of — and a higher price for — customer claims. As a result, customers are seeing higher premiums as insurers increase prices to cover these losses.”

In 2022, 18 natural disasters resulted in 165.1 billion in damages, according to the National Centers for Environmental Information (NCE).

Location, Location, Location

There is an old axiom in real estate that the three most important things to consider are – location, location, location. Location also plays a role in insurance risk.

For example, Tennessee has seen trends in rising auto insurance premiums. Residents looking for the best rates on auto insurance TN should compare providers and explore discounts. Considering regional factors like accident frequency, traffic density, and weather events can significantly impact costs.

With increased climate events, insurance companies are raising premiums even higher and faster in states that are more susceptible to environmental disasters. What is more, some insurers are pulling out to states altogether, such as California and Florida.

In addition, other factors beyond climate change are pushing rates higher in certain states. Those factors include everything from legislative changes, the labor market, and the frequency of accidents.

Michigan has maintained the highest car insurance rates in the nation for three years in a row, according to Insurify. Currently, the annual premium in Michigan is $2,766. That is about $200 higher than New York, which occupies the second post by Insurify’s tally.

Rates are rising fastest in New Mexico and Nevada. The 38 and 36 percent premium hikes respectively in those states is being attributed to increased traffic fatalities.

How You Can Save On Car Insurance

Inflation, repair costs, and climate change may seem out of your control. However, there are some things you can do to cut your car insurance premiums without cutting your coverage.

Shop for the Best Coverage.

- If you shop for rates online, be sure you include your location in searches. You can also contact an independent broker who can help compare rates between multiple carriers.

Take advantage of discounts.

- Insurers usually offer savings for bundling home and auto coverage. In addition, you may save money if you have a safe driving record, own a hybrid or electric vehicle or have enhanced safety and security features.

Maintain a good credit score.

- Most states allow insurers to set lower rates for a good credit score.

Attend a safe driving course.

- This is particularly important if you have had an accident recently. That is because an accident can trigger a premium increase. Completing a safe driving course may offset that price hike.

Increase your deductible.

- This will lower your premium. However, it will result in higher out-of-pocket costs if you have an accident. As a result, it is not well suited for you if you are living paycheck-to-paycheck. On the other hand, If you have a well-funded emergency fund, this could be an option.

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Max Erkiletian

Max K. Erkiletian began writing for newspapers while still in high school. He went on to become an award-winning journalist and co-founder of the print magazine Free Bird. He has written for a wide range of regional and national publications as well as many on-line publications. That has afforded him the opportunity to interview a variety of prominent figures from former Chairman of the Federal Reserve Bank Paul Volker to Blues musicians Muddy Waters and B. B. King. Max lives in Springfield, MO with his wife Karen and their cat – Pudge. He spends as much time as possible with his kids, grandchildren, and great-grandchildren.