If you own a car, you probably need auto insurance. Drivers are required to carry auto insurance in 49 of the 50 states—except New Hampshire.
But car insurance is getting significantly more expensive. In August, the average cost of auto insurance rose 19% year-over-year in the US – the sharpest annual increase since 1976. Unfortunately, insurance rates will likely continue to rise in 2024. Here’s why your auto insurance bill keeps rising—and what you can do about it.
1. Cars are becoming more and more expensive to repair
Auto insurance companies have been struggling with inflation just like the rest of us in recent years. But car repair costs are rising much faster than general inflation, according to a June 2023 report from the American Property Casualty Association.
Cars are becoming more complex, increasing the cost of repair labor. Spending on spare parts and equipment also outpaced inflation.
Although used car prices have begun to cool from their pandemic peaks, 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. As used vehicle prices remain high, insurers end up having to pay more to repair or replace a vehicle.
2. Damage claims are also becoming more expensive
The same report found that rising costs of personal injury claims were a factor in rising insurance rates. This is partly because hospital and medical care costs tend to rise at a higher rate than general inflation.
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Insurers are also reporting an increase in average case values. Between 2019 and 2020, the average personal injury assessment rose by nearly 25%. Inflation, as measured by the Consumer Price Index (CPI), was just 3.1% over the same period.
3. Drivers engage in riskier behavior
Unfortunately, road traffic deaths have increased in recent years. Although car-related deaths are declining, people are still dying on the roads at higher rates than before the pandemic, driving up insurance costs.
There are several explanations for why roads have become more deadly. According to AAA, more people reported engaging in risky driving behaviors — such as driving more than 15 mph over the highway speed limit, reading email or texting behind the wheel, and even driving when they knew they were likely to legally drunk – in 2021 compared to 2020. Changes in policing, including less traffic enforcement, is another possible factor.
4. Bad weather is becoming more frequent
An increase in extreme weather events, such as hurricanes, floods and wildfires, is also likely fueling a spike in insurance premiums, especially in vulnerable states. Florida, for example, is now the most expensive state for auto insurance after the heavy losses carriers suffered in 2022 from Hurricane Ian.
Some insurers are pulling out of risky states, allowing those that remain to increase their premiums. Insurers are also increasing the cost of their reinsurance, which is the insurance that insurers buy so they don’t have to pay the full cost of claims, and passing the extra cost on to customers.
How to save money on car insurance (and one thing to avoid)
Although car insurance prices are unlikely to drop in 2024, there are still plenty of ways to save money on car insurance. For example, the best car insurance companies usually offer a range of discounts for factors such as maintaining a good driving history or taking a defensive driving course. It’s also usually a good move to get 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: reducing your liability coverage. If you are responsible for an accident where the damages exceed your coverage, you can be personally sued for the difference. You will never have enough car insurance in case of an accident. But maintaining higher liability coverage offers financial protection in a worst-case scenario.
Our Best Car Insurance Companies for 2022
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