Auto insurance rates have been relentlessly increasing, putting a squeeze on car owners and fueling inflation. These rates have witnessed a substantial rise of 22% year-over-year, with a 2.6% jump in March alone. This persistent increase has been observed since 2022, even as inflation at the consumer level has gradually cooled from its 9.1% peak in mid-2022.
While consumers have experienced some relief due to easing energy and food costs, auto insurance and car ownership expenses have remained a pain point, posing a challenge to the Federal Reserve’s efforts to curb inflation to its target of 2%. Traditionally, factors such as speeding tickets, moving violations, adding new drivers, or area-specific claims increases were the primary drivers of premium hikes. However, the recent surge in rates has been much more widespread.
The pandemic triggered a spike in new vehicle prices, primarily due to a global shortage of computer chips amid production cuts and supply chain disruptions. Dealerships faced inventory shortages throughout much of 2021. While the situation has improved in 2024, with average car prices decreasing from a peak of $48,516 in late 2022 to $47,338 in January (according to Edmunds.com), the overall cost of repairs remains elevated due to higher vehicle values and the use of more advanced technology and intricate parts.
The U.S. Bureau of Labor Statistics reports that overall maintenance and repair costs have increased by 8.2% year-over-year in March, although this rate has moderated somewhat, with early 2023 seeing an increase as high as 14.2%. Greg Smolan, vice president of insurance operations at AAA Northeast, highlights that the severity of accidents has significantly impacted rates over the past two years, stating, “A fender bender in the past didn’t have all the sensors and cameras.” The combination of higher auto prices and repair costs has prompted insurers to increase premiums in line with the rising value of vehicles.
Unlike other sectors where prices have declined alongside broader inflation, insurance rate increases have been persistent, providing a boon for insurers who have witnessed substantial profit surges. Industry leaders like Progressive and Allstate have reported significant financial gains, with Progressive expecting a substantial 80% profit increase and Allstate anticipating a 13-fold profit surge in 2024. Smolan believes that companies are approaching rate adequacy, suggesting that the large increases observed in recent years may begin to stabilize.
Navigating the process of obtaining auto insurance can be complex due to varying state requirements, optional coverage options, and the use of specialized industry jargon. The Insurance Information Institute recommends that consumers gain a thorough understanding of auto insurance and shop around for quotes from different types of insurance companies. By considering the cost of insurance before purchasing a car, consumers can better gauge the true expenses associated with vehicle ownership. Premiums are influenced by factors such as the car’s price, repair costs, and safety data.
Deductibles also play a significant role in determining monthly premiums. Higher deductibles typically result in lower premiums. Bundling multiple policies with a single insurer can often qualify for discounts, particularly for homeowners who combine their home and auto insurance with the same provider. Discounts may also be available for insuring multiple vehicles under the same company. Defensive driving courses can help drivers obtain insurance discounts. The specific requirements and availability of these courses vary by state, but they are generally offered in both in-person and online formats. Insurance companies like Progressive and Geico often provide discounts for multi-year policies and can assist policyholders in finding reputable driving schools that offer the necessary courses and certification.
