Rapidly rising auto insurance rates are putting a strain on car owners and contributing to inflation. Insurance rates have climbed 2.6% in March and a staggering 22% over the past year. This continuous upward trend has persisted since 2022, even as consumer inflation has gradually declined from its mid-year peak of 9.1%.
Consumers have experienced some relief as the rate of price increases for food and energy, essential components of most budgets, has eased considerably. However, auto insurance and car ownership costs remain a persistent concern for consumers and the Federal Reserve in its fight to bring inflation back to its target of 2%.
Historically, factors such as speeding tickets and moving violations, adding new drivers, or an increase in claims in an area would lead to noticeable premium increases for individuals. However, the relentless rate increases witnessed over the past two years have been far more widespread.
The pandemic sparked a spike in new vehicle prices primarily due to a global shortage of computer chips amidst production cuts and supply chain disruptions. Dealers found themselves with limited or no inventory throughout much of 2021. Car price increases moderated heading into 2024, with the average hitting $47,338 in January, down from a peak of $48,516 in late 2022, according to Edmunds.com.
Higher car values, coupled with more advanced technology and intricate parts, have escalated the overall cost of repairs. Maintenance and repair expenses surged 8.2% in March compared to the previous year, as reported by the U.S. Bureau of Labor Statistics. While this has eased slightly over the past year, the rate of increase reached as high as 14.2% in early 2023.
“The severity of accidents has significantly impacted rates over the last two years more than anything else,” said Greg Smolan, vice president of insurance operations at AAA Northeast. “In the past, a fender bender wouldn’t involve all these sensors and cameras.”
The combination of higher car prices and repair costs prompted insurers to raise premiums as overall car values climbed. Price increases for insurance, similar to many other goods from food to clothing, have been persistent and unlikely to decline at the same pace as broader inflation, if at all. This trend has positively impacted insurers, resulting in a surge in profits. Wall Street anticipates even greater gains in 2024.
“Our primary focus last year was to achieve the right rate,” said Progressive CEO Tricia Griffith during a fourth-quarter earnings conference call. “We believe we are now in a very strong position.”
Progressive reported a 50% jump in profit and an impressive 18% revenue growth to $62.1 billion in 2023. Wall Street forecasts a near 80% profit surge in 2024, along with a 14% revenue increase. Allstate, after reporting a loss a year earlier, posted a modest profit in 2023. Wall Street anticipates a 13-fold increase in profit for 2024, accompanied by a 10% revenue rise to $62.9 billion.
“Companies are getting much closer to rate adequacy,” Smolan noted. “I believe we will witness some stabilization in the significant rate increases.”
Securing auto insurance can be a complex and overwhelming process, given the varying requirements in different states, additional coverage options, and confusing industry and legal jargon employed by insurers. The Insurance Information Institute advises consumers to start by educating themselves about auto insurance and shopping around for quotes from multiple insurance providers. Comparing costs before purchasing a car can also provide a better understanding of the true cost of ownership. Premiums are partially based on a car’s price, potential repair costs, and safety data.
Deductibles can significantly impact monthly premium costs. A higher deductible generally leads to lower premiums. Bundling multiple policies with one insurer may qualify for discounts, a common practice for homeowners who combine their home and auto policies with the same company. Discounts may also be available for insuring more than one vehicle with the same insurer.
Defensive driving courses can help drivers qualify for insurance discounts. The timing and standards for such courses vary depending on the state, but they are typically offered both in-person and online. Companies like Progressive and Geico often offer multi-year discounts for completing these courses and can usually direct policyholders to reputable providers for the course and certificate.
