If you think the cost of a car has gone up, wait until you go to insure it.
Auto insurance rates have risen nearly 15% in some states over the past year, while premiums nationally have risen more than $240 on average to $2,014 a year, according to the site of Bankrate comparison. And the increases are not over. US rates are expected to rise an additional 8.4% in 2023, which would outpace current inflation by 4.9% and represent the biggest increase in six years, according to the finance and research site of the ValuePenguin consumer.
The rise in insurance costs comes as consumers are struggling financially after nearly three years of high inflation and rising car prices. A report from insurance platform Autoinsurance.com shows that eleven percent of drivers now pay more for car insurance than their car payments and 7% spend more on insurance than on home utilities.
“Many consumers have little to spare in their budgets to pay more for household items and auto insurance,” said Aliza Vigderman, chief content officer at AutoInsurance.com. He said the impact of higher auto insurance costs cuts across high- and low-income households. And for people living on fixed incomes, “it could soon be impossible to pay for car insurance.”
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Why is car insurance so expensive?
What you pay for auto insurance varies from person to person, depending on location, type of car, and a person’s age and driving record.
But there are some things that influence everyone’s price increase. This includes:
- Economic inflation the kind everyone has been talking about for the past few years, including the rising costs of groceries, smartphones and tires. This inflation also includes the rising costs of labor, auto parts, medical care if someone is injured, and the prices of new and used cars, all of which have contributed to higher insurance prices.
- Social inflationas people’s propensity to file or litigate claims, has been increasing, according to the Insurance Information Institute (III).
- Risky driving behaviour which pushed traffic deaths to a 16-year high in 2020, with speeding-related crashes up 11% and alcohol-related crashes up 9% from 2019, despite fewer drivers in the road, the National Highway Traffic Safety Administration said. Estimates show 9,560 people died in road accidents in the first three months of 2022, up 7 percent from the same period in 2021 and the deadliest first quarter since 2002, it said.
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Will prices drop?
Probably not anytime soon.
The most likely outcome is that “auto insurance premium rates will have to increase significantly in the coming years,” the Insurance Information Institute said in a report. “Even if headline inflation eases, labor and replacement costs will continue to rise, albeit more slowly.”
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What can consumers do to try to lower their auto insurance costs?
Some options to consider to lower your car insurance bill are:
- Shop around. Research and analysis firm JD Power says high rates have forced more people than ever before to buy auto insurance. In March, the average 30-day purchase rate reached 13.1%, the highest since JD Power began tracking it in June 2021, after a 14% increase in February .5% on car insurance costs.
- Pool your homeowners, car and any insurance policies you have with one insurer. Insurers often offer discounts if you have more than one policy with them.
- Ask for discounts. “All insurance companies offer some kind of discount, whether it’s for autopay, for kids with good grades, or for a driver’s education class,” Vigderman said.
- telematics, which is software that monitors driving style and assigns rates based on mileage and safety metrics. “If you drive fewer miles and drive safely, you can save money,” Vigderman said. This often requires you to add a device to your car that transmits information to the insurance company, which some people oppose as tracking software “but some might argue your phone already does.”
JD Power estimates that telematics is now offered to 22% of insurance buyers and purchased 18% of the time, compared to an offer rate of 16% and a purchase rate of 12% in 2020, which shows that it is becoming more popular.
With many people working from home, Vigderman says this option could work for more people. “People have shorter commutes or no commutes, so they can pay a small daily fee plus a mileage fee and save a lot of money,” he said. “It also encourages safe driving.”
One thing people should NOT do is go for the cheapest insurance, which is the state’s “minimum liability policy that only covers people and property outside of your car, so you would have to pay out of pocket for your medical costs or damage to your car. At the very least, get full coverage.”
Medora Lee is a money, markets and personal finance reporter for USA TODAY. You can reach her at mjlee@usatoday.com and subscribe to our free Daily Money newsletter for personal finance tips and business news Monday through Friday mornings.
