Anyone already feeling the burn from steep increases in their auto insurance rates over the past year should buckle up — it's getting expensive.
U.S. auto insurance premiums will continue to rise this year after rising more than 43% since January 2022, new research from Bankrate shows.
“While we hope to see interest rates stabilize soon, that likely won't happen until at least 2025,” Bankrate analyst Shannon Martin said in a statement.
The national average cost of full coverage auto insurance was $2,543 per year as of January, up 26% from $2,014 in January 2023 and $1,771 in January 2022, according to Bankrate.
“I can barely afford it on a decent income.”
Those who saw their bills go up include Los Angeles resident Karina Martinez. Her car insurance jumped to $212 from $121 a month for her 2013 BMW last year. “I have no accidents, no claims, no tickets. I drive very little on the weekends because I work from home,” she said.
Martinez has tried in the past to negotiate a lower rate with her insurance company, but was unsuccessful. “Because of my experience of not being able to get any answers, I have not challenged a rate hike in 2023. It is futile,” she told MarketWatch. As insurance premiums continue to rise, she said: “It's hard when everyone is raising prices. I can barely afford it on a decent income, and I can't imagine how people who are struggling financially are coping.”
Why are insurance rates rising?
Martin said the rate increases are due in part to insurers reevaluating their risk models to account for increased claims due to the rising cost of vehicle repairs and severe weather.
Drivers with lower credit score scores (which predict how likely you are to file a claim and differ from the credit score used by lenders) pay even more: $4,338 per year on average, according to Bankrate.
More increases could come soon, according to initial filings of rate increases in the first half of 2024 that insurers sent to state insurance commissioners, said Stephen Crewdson, senior director in J.D. Power's global insurance intelligence group.
If insurers follow through on the proposed rates, they could be as “aggressive” as last year, which was already a “watershed year” for raising premiums, he said.
“It was different from what we had seen before in the industry” more than two decades ago, Crewdson said.
Since auto insurance is a required purchase in almost every US state, insurance companies must obtain regulatory approval to increase their rates.
Paul Newsom, a managing director and senior research analyst at Piper Sandler who covers the insurance sector, said the rise in interest rates was primarily driven by rising costs for auto insurers — from expensive cars and auto parts to a shortage of auto body shop workers that make Repairs are more expensive and time consuming.
He said that many insurance companies need to increase insurance premiums to compensate for the billions they have lost over the past two years.
“They had huge losses basically through this quarter,” he said. “For many insurance companies, price increases are not optional.”
When asked if auto insurance rates were expected to rise again this year, a representative of the Insurance Information Institute, a group that represents the insurance industry, did not answer the question directly, but said auto insurance companies were dealing with weak financials for the current year. The past few years.
“There is no doubt that the U.S. personal auto insurance market is taking a hard hit in this inflationary environment,” said Scott Holman, a spokesman for III. “But in addition to inflation, we are also seeing a significant increase in accidents on American roads.”
Holman said insurance company losses are increasing because there are more accidents, and more severe accidents. Deaths and injuries on the road increasingly lead to lawsuits, which translates into higher costs for insurance companies. “This litigation has a direct impact on insurance premiums,” Holman said. In addition, supply chain problems continue to drive up the costs of cars and their parts, and high-tech cars are more expensive to repair.
Consumers are feeling these effects too. Rising costs of vehicles, insurance, fuel and repairs have pushed the monthly expenses of owning a car to $1,015 in 2023, which amounts to $12,182 annually, an increase of more than 13% year over year, according to AAA. A family now needs to earn about $100,000 a year to afford a new car, MarketWatch reported last fall.
More drivers are skipping car insurance altogether
While car ownership in the United States remains high, the rising cost of ownership has led to an increase in the number of uninsured drivers. The number of households that own a car but do not have car insurance rose to 5.7% in the first half of 2023 from 5.3% in the second half of 2022, according to JD Power surveys. While that share fell slightly at the end of last year, it rebounded to 6.2% in January, Crewdson told MarketWatch.
Uninsured drivers can face fines for not having coverage and take on a lot of additional risks. Those at fault may need to cover the losses of the other driver and any other passengers, including medical expenses, Crewdson said. If drivers cannot cover these expenses out of pocket, the dispute may be filed in court.
Bankrate analyzed insurance premiums in the 26 largest metro areas and found that drivers in the Detroit area pay the most for insurance as a percentage of household income ($5,687), followed by Miami ($4,213), Tampa ($4,078), Philadelphia ($4,753), and Las Vegas ($3626).
On the other hand, drivers in the Seattle metro area pay the least in income share ($1,759), followed by Boston ($2,094), Washington, D.C. ($2,430), Portland ($1,976), and Minneapolis ($2,044).
Doug Heller, insurance director at the Consumer Federation of America, said he's concerned that higher premiums could persist even after insurer costs stabilize again.
He noted that companies were slow to cut rates or pass on gains to customers in the early days of the pandemic — when many drivers stayed off the roads and the costs of covering claims fell, boosting insurers' margins.
Insurers got a big chunk of that windfall, he said — even though some insurers gave drivers rebates and other relief on insurance costs during the pandemic.
“It's a matter of the few heads we win, the few tails we lose,” he said. “I'm a little concerned that we'll still be stuck with higher rates even as the cost associated with insurance policies comes down.”
As prices increase significantly, more customers will feel forced to reduce their insurance coverage or give it up altogether, Heller said.
“I'm concerned that these prices will mean more dangerous and less protected roads,” he said.
Tips to lower your car insurance premium
No. 1: Shop often.
This is probably the most important thing you can do to lower your insurance costs — especially if you've been insured through the same company for a long time, Heller says.
He usually recommends consumers shop for a better auto insurance policy every two to three years. But nowadays, it is better to do it once a year or every time your insurance policy is renewed.
“It won't take away all the pain,” he said, but in some cases it can help you save up to 30% on coverage.
No. 2: Check the number of miles registered with your insurance company.
Heller also suggested contacting your insurance company to make sure their estimates of your annual mileage are still accurate.
Mileage is one of many factors that insurance companies take into consideration when determining your rate. If you drive less these days, that could lower your premium – although the amount of miles factored into your premium depends on your insurer.
#3: If you also own your home, bundle your home and car insurance.
“Many insurance companies will give you a break if you purchase two or more types of insurance,” according to the Insurance Information Institute. Drivers can also get a discount by insuring more than one car with the same insurer, and some get lower rates as long-time customers (but again, shop around often).
#4: Ask for a higher discount.
You're rolling the dice a bit here since your insurance won't kick in until you meet your deductible, but if you're able to pay a higher deductible if you get into an accident, it could help lower your premiums significantly, according to the Insurance Information Institute, which He makes a number of other suggestions here.
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