If you own a car, you probably need auto insurance. Drivers are required to carry car insurance in 49 out of 50 states — with New Hampshire being the exception.
But auto insurance is getting significantly more expensive. In August, the average cost of car insurance was up 19% year over year across the U.S. — the steepest annual increase since 1976. Unfortunately, insurance rates will probably keep rising in 2024. Here’s why your auto insurance bill keeps going up — and what you can do about it.
1. Cars are getting more expensive to repair
Auto insurance companies have struggled with inflation just like the rest of us in recent years. But the costs of repairing a car have been rising much faster than overall inflation, according to a June 2023 report by the American Property Casualty Association.
Cars are getting more complex, which drives up the cost of labor for repairs. The costs of replacement parts and equipment have also outpaced inflation.
While used car prices have started to cool off from their pandemic highs, they were still up nearly 40% in April 2023 compared to September 2019. Insurers calculate a vehicle’s actual cash value when determining whether to repair a vehicle or declare it a total loss. Because used vehicle prices remain elevated, insurers ultimately have to pay out more to repair or replace a vehicle.
2. Injury claims are also getting more expensive
The same report found that the soaring cost of bodily injury claims is a factor in surging insurance rates. That’s partially due to the fact that costs of hospital and medical care tend to rise at a higher rate than overall inflation.
Insurers also report a run-up in median lawsuit values. Between 2019 and 2020, the median personal injury judgment spiked by nearly 25%. Inflation as measured by the Consumer Price Index (CPI) was just 3.1% for the same period.
3. Drivers are engaging in riskier behavior
Sadly, traffic fatalities spiked in recent years. Though car-related deaths are on the decline, people are still dying on the road at higher rates than they were prior to the pandemic, which causes insurance costs to increase.
There are a few explanations for why roads have gotten deadlier. According to AAA, more people reported engaging in risky driving behaviors — like driving more than 15 mph over the speed limit on the freeway, reading emails or texts behind the wheel, and even driving when they knew they were probably legally drunk — in 2021 compared to 2020. Changes in policing, including less traffic enforcement, is another possible factor.
4. Severe weather is growing more frequent
A rise in extreme weather events, like hurricanes, floods, and wildfires, is likely also fueling the surge in insurance premiums, particularly in vulnerable states. Florida, for example, is now the most expensive state for auto insurance after the major losses carriers experienced in 2022 from Hurricane Ian.
Some insurers are pulling out of risky states, allowing those that stay to raise their premiums. Insurers are also increasing costs for their reinsurance, which is the insurance that insurers purchase so that they don’t have to pay full claim costs, and passing the extra expense to customers.
How to save money on car insurance (and one thing to avoid)
While car insurance rates are unlikely to drop in 2024, there are still plenty of ways to save money on auto insurance. For example, the best auto insurance companies typically offer a range of discounts for factors like maintaining a good driving history or taking a defensive driving course. It’s also usually a good move to obtain quotes from multiple carriers a few weeks before your policy renews to make sure you’re getting the best deal.
Another way to save money on premiums is by increasing your deductible. But make sure you have enough money in your emergency fund to pay the higher deductible if you go this route.
One thing you want to avoid: lowering your liability coverage. If you’re responsible for an accident where the damages exceed your coverage, you can be personally sued for the difference. You can never have enough auto insurance in the event of a catastrophic crash. But maintaining higher liability coverage offers financial protection in a worst-case scenario.
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