Car Insurance Rates Soar, Up More Than 22% In A Year. Why Is This Happening?

A Note From Patricia:

Hello and welcome to Forbes Advisor’s Weekly Brief, where each week we dive into the realities of consumer finance and empower you with knowledge to help make your financial journey easier. 

It’s not your imagination: Car insurance premiums have increased significantly in the past year. 

According to March’s Consumer Price Index from the Bureau of Labor Statistics, premiums have increased by 22.2% over the past year, far outpacing the overall inflation rate of 3.5%. Compare this to groceries, a budget line item causing considerable consumer pain, but which only went up by 1.2% in the past year.

Americans are already feeling this drastic price increase. A recent J.D. Power survey found that nearly half (49%) of auto insurance customers are shopping around for a new policy.  Throw in the fact that car maintenance and repair costs jumped 8.2%—owning a car is squeezing consumer budgets dry. 

This week, we’ll do a deeper dive into what’s driving these costs and some avenues you can take to minimize the cost of your car insurance premium.

We would love to hear your thoughts or experiences in the comments section below. Have a wonderful day and hope to hear from you soon.

Sincerely,

Patricia Louis

Editor, Forbes Advisor

Car Insurance Rates Soar, Up More Than 22% In A Year. Why Is This Happening?

Car insurance premiums have skyrocketed over the past year. According to a recent Forbes Advisor analysis, in 2023, the average cost for full coverage car insurance was $1,728 per year for a 35-year-old. In 2024, the average cost has gone up to $2,129 per year—an increase of 23%.

This has led many people to start shopping around for new insurance plans. The J.D. Power U.S. Insurance Shopping Study found that out of the almost half of respondents who said they actively shopped for a new policy in the last year, 29% switched insurers.

Insurance companies were hit hard by the Covid-19 pandemic when many people stopped commuting and traveling, but their financials show strong recovery signs. GEICO, for example, reported $3.6 billion in pretax underwriting profits in 2023. But these profits haven’t translated to stable or lower premiums.

One possible reason for spiking insurance premiums is that vehicle-related costs have been increasing all around. The prices for car parts, repairs and new and used cars, along with higher medical costs, are making claims more expensive. In 2022, the average collision claim was $5,992 according to the Insurance Information Institute. This is up from $5,136 in 2021, a 16.7% increase.

Additionally, the number of insurance claims related to car crashes has risen 14% since 2020, while claim severity, or the monetary loss of an insurance claim, jumped 36%, according to a July 2023 report from the American Property Casualty Insurance Association.

Fortunately, there are a few things you can do to lower your car insurance costs:

• Shop around: Make sure to compare quotes from multiple insurers each year. While the process can be lengthy, it can potentially save you hundreds of dollars to shop around and compare prices. For example, we found in our own analysis that the cost of full coverage car insurance for a driver with a clean record insuring a Toyota RAV4 ranged from a low of $1,412 per year with USAA to a high of $3,233 per year with Mercury. 
• Bundle your policies: Insurers often offer discounts if you bundle your car and homeowners policies with them. Make sure to ask about discounts, as some companies also offer discounts for low-mileage drivers or teenage drivers who get good grades, for example.
• Raise your deductibles: One way to potentially reduce your premium is to increase your deductibles for collision and comprehensive coverage. Keep in mind that this means you’ll pay more out of pocket if you make a claim. 
• Track your driving: Some insurance policies allow you to save money by using technology to collect information about your driving habits and score you on them. This is known as usage-based car insurance, and if you score high enough, you may be eligible for discounts on your insurance.

For more information on why car insurance premiums are soaring, and how you can save on your insurance, read more here.

Related Stories: 

• 8 Best Car Insurance Companies Of April 2024
• Car Insurance Discounts Guide 2024
• How Much Car Insurance Do I Need?   

Here’s what else is going on in the news this week:

• HomeServices Becomes Final Brokerage To Settle Real Estate Agent Fee Lawsuit In a landmark case, HomeServices of America will pay $250 million to resolve a series of lawsuits that challenged how real estate agents are paid.
• ‘Substantial’ Share Of Americans Could Have Medical Data Exposed By Cyberattack, UnitedHealth Admits UnitedHealth Group has revealed that a February cyberattack on its claims processing unit may have exposed the personal or health-related information of “a substantial proportion of people in America.” Here’s what you need to know.