Are you feeling the pinch of rising auto insurance premiums? You’re not alone.
Auto insurance costs have surged faster than many other consumer expenses, leaving drivers scrambling to understand why. In this blog post, we’ll delve into the factors driving this surge and provide some resources to navigate this challenging landscape.
Topics Covered
The Current Auto Insurance Landscape
According to the Consumer Price Index (CPI), auto insurance prices have spiked by 19.2% in the past year, surpassing the overall inflation rate and outpacing other significant spending categories. In addition to the pandemic-induced surge in car prices, there was a rise in risky driving behavior during lockdowns, leading to more severe claims and forcing insurance companies to pass these costs onto consumers.
Inflation is also a factor. Even though it’s generally easing, it often takes a long time for auto insurance rates to adjust due to the approvals needed from state regulators. This has created a lag between what insurance companies need to charge to remain profitable and what they’ve been able to charge in the last few years based on regulations and market conditions.
Personal auto insurance companies took a hit with underwriting losses of a whopping $33.1 billion in 2022; the average cost per claim shot up to $11,102, a whopping 11% increase.
What this means for insurance companies is that there’s more risk involved in covering the average driver. Many have either raised coverage costs or withdrawn from high-risk markets in response to this increased risk.
Insurance companies are now catching up, and drivers are feeling the pinch, with their premiums rising.
What’s In Store for Auto Insurance Rates in 2024?
Industry gurus predict that 2024 might be gentler on drivers’ wallets, with fewer significant premium hikes on the horizon. But here’s the scoop – drivers should still brace themselves for a possible bump in premiums.
Drivers are now paying an average of $1,765 a year for full-coverage insurance, up from $1,194 in 2019 – a 47% increase on average.
Many experts believe that after auto insurance companies catch up to market conditions, prices will level off in mid-to-late 2024, leading to more stability for drivers … and their wallets. However, many unknown factors remain in the marketplace, and this stability is still an open question.
5 Factors Contributing to Rising Auto Insurance Costs
#1 – Car Repair Costs
One of the reasons for a riskier auto insurance market is because of more expensive car repairs.
Fixing your car during high inflation and supply chain issues has made it all the more costly for drivers and insurance companies. The parts needed for those repairs are thus hitting drivers’ wallets harder than they did in pre-pandemic times, and for insurance companies, it means higher costs to cover.
Demand for new vehicles is high right now, so many major automakers are focusing on building new cars and are putting less emphasis on making parts for repairs. This can mean long wait times for drivers waiting to get their vehicles repaired.
According to the Bureau of Labor Statistics, car parts have also become pricier in the last two decades – a whopping 69% increase.
With the costs of fixing cars rising, insurance providers are paying for more – and bigger – claims than ever. Many are bumping up premiums to cover these rising expenses when it’s time for policyholders to renew.
#2 – Rental Costs
It’s not only the cost and problems associated with getting the necessary parts for your car if you’re in an accident. There’s also the rising cost of rental vehicles for drivers with rental car reimbursement coverage. Longer wait times for car repairs mean insurance companies cover rental costs for extended periods.
When your car is in the shop, and your insurance company provides you with a rental vehicle, it now costs them more to fulfill that need than it did pre-pandemic, and the costs are getting passed on to drivers in the form of higher premiums.
#3 – Bad Driving During the COVID-19 Pandemic
The way we drive has seen some big shifts thanks to COVID-19. Instead of our usual daily commutes or weekly errands, many of us found our cars staying put. Now that pandemic restrictions have lifted, more Americans are back on the roads.
But it turns out that while lockdowns might have improved our handwashing, they made us worse drivers.
A study from the Insurance Institute for Highway Safety in Virginia found that during the pandemic, drivers were tempted to speed on emptier roads, and even as traffic picked up post-lockdown, speeding habits persisted. During weekday commuting hours, the percentage of vehicles going at least 10 miles per hour over the speed limit increased by around 43% in the morning and 63% in the evening.
Not only are we driving faster, but we’re also more distracted. A study by Travelers Insurance on distracted driving revealed that 70% of Americans now see distracted driving as a more significant concern. And there’s good reason for that – the National Safety Council reported an 18% increase in preventable traffic crash deaths in 2022 compared to pre-pandemic numbers.
The stress of the pandemic has affected our driving habits, especially situational awareness. A study published in the Journal of Transport & Health found that the pandemic significantly worsened drivers’ situational awareness, leading to more mistakes on the road and an increase in serious accidents.
All these changes in driving behavior are showing up in insurance claims and costs. Bodily injury and property damage claims have risen by 35% since 2019, and collision severity has spiked by 40%.
Our time off the road has diminished our driving skills.
#4 – Inflation
Let’s talk about inflation. The Federal Reserve is tackling inflation by making borrowing cash a pricier affair. Even though inflation recently took a dip, the Fed isn’t letting its guard down.
Inflation plays a role in why insurance rates are climbing because inflation-driven price hikes tend to stick around. Once it’s woven into the fabric of general prices, they often remain for the long term. Even if the inflation rate drops slightly, prices may keep rising until insurance markets catch up and correct themselves.
#5 – Climate Change
The effects of climate change have made the insurance industry riskier. Insurance companies have to insulate themselves from these disruptions or leave high-risk markets altogether. For example, Farmers Insurance announced in July 2023 that it would be withdrawing from the Florida insurance market due to the level of risk, and they’re not the only ones.
These costs may be passed on to drivers nationwide when they’re insured by national insurance companies. Some insurers are pulling out of high-risk markets, while the remaining ones are increasing their costs to cover higher and more frequent claims. Insurance companies also have to carry insurance for themselves – called reinsurance – so they don’t always have to pay for an entire bill in case of a big claim. These costs have increased for them as well.
With the climate heating up and wildfires, floods, and other disasters becoming more frequent, car insurance companies are bracing themselves for more claims as the insurance industry has become more unpredictable and riskier.
How to Save on Auto Insurance
In our mission to help you navigate the complicated world of insurance – whether auto, home, farm, or business – we wanted to share some great resources to help you reduce your auto insurance costs.
For personal drivers, we recommend checking out the following resources:
- 6 Ways to Reduce or Avoid Auto Insurance Claims
- 10 Ways Drivers Can Lower Their Auto Insurance Rates
If you own a business, try reading these resources:
- The Small Business Owner’s Guide to Commercial Auto Insurance
- What Business Owners Should Know About Distracted Driving
Conclusion
Despite the challenges, there are signs of relief to come. Used car prices are falling, new car prices are stabilizing, and inflation in auto body repair costs is slowing down. As insurers adjust to market dynamics, drivers can anticipate more stable premium costs in the near future.
The surge in auto insurance costs is a complex interplay of economic, environmental, and behavioral factors. While the road ahead may still be uncertain, understanding the root causes and staying informed can empower drivers to make informed decisions. As you brace for potential premium increases, consider exploring discounts, regularly shopping for insurance quotes, and adopting strategies to lower overall insurance costs. By navigating these turbulent waters with knowledge and diligence, you can better position yourself against the rising tide of auto insurance premiums in 2024.
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*Disclaimer: We offer content for informational purposes; Co-operative Insurance Companies may not provide all the services or products listed here. Please contact your local agent to learn how we can help with your insurance needs.
Sources
Bankrate. Driving is back to pre-pandemic levels. https://www.bankrate.com/insurance/car/driving-back-to-pre-pandemic-levels/#use-it-or-lose-it
CBS News. Car insurance premiums around the U.S. are soaring. Here’s why. https://www.cbsnews.com/news/car-insurance-rates-inflation-costs/
Clickorlando.com. Here’s what to know as Farmers Insurance begins withdrawal from Florida. https://www.clickorlando.com/news/florida/2023/08/01/heres-what-to-know-as-farmers-insurance-begins-withdrawal-from-florida/
CNN. Car insurance rates just had their biggest annual jump in 47 years. This is why. https://www.cnn.com/2023/09/13/business/inflation-car-insurance-rate-increases/index.html
Investopedia.com. If You Thought The Worst of Inflation Was Over, Check Out Your Insurance Bill. https://www.investopedia.com/if-you-thought-the-worst-of-inflation-was-over-check-out-your-insurance-bill-8386955
Marketplace.org. Why some car parts are still hard to find. https://www.marketplace.org/2023/09/18/why-some-car-parts-are-still-hard-to-find/
Money.com. Experts Predict How High Car Insurance Prices Will Rise This Year. https://money.com/car-insurance-prices-2024-predictions/
Reuters. ‘Remarkable’ surge in auto insurance costs fans US inflation. https://www.reuters.com/markets/us/remarkable-surge-auto-insurance-costs-fans-us-inflation-2024-01-11/