Car insurance prices tend to go up every year, but recent steep increases are caused by inflation, a pandemic-related shortage of used cars, and a shortfall of auto repair technicians.
Why do car insurance prices go up almost every year?
When insurers pay for auto claims, they are paying to fix cars, to repair property that is damaged in a crash, and for medical treatment for injuries from a car accident.
Repairs to a car require parts and skilled labor. Property repairs require materials and various kinds of contractors. Medical bills include hospital bills, provider bills, durable medical goods, prescriptions, and medical testing. Each of these underlying costs is subject to inflation, which tends to go up a bit each year (or a lot more than a bit recently!).
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Insurance pricing is highly regulated. Insurance companies take the amount they pay out on claims and add on the costs of adjusting claims, sales and marketing, and administrative expenses. The amount of non-claims cost is carefully monitored by your state regulators, who need to approve insurance rates before a company is allowed to charge them to customers.
As a result, when the underlying costs of putting people, cars, and property back together after a crash goes up, there's a direct impact on car insurance prices.
Why have car insurance prices been increasing so fast in 2022 and 2023?
You may have gotten sticker shock when you got your auto insurance renewal this year. There are several post-pandemic trends that are causing these steep price increases:
- Higher costs of fixing cars: The cost of fixing a car after a collision claim increased by 40% from 2019 to 2022.1 Both labor costs and parts prices have increased. Continued disruption to the supply chain and a shortage of auto technicians2 have also caused delays in getting some parts quickly and then getting cars fixed. The longer a car sits unrepaired, the more expensive claims get in total as insurance companies pay for storage and rental cars.
- More severe accidents: Traffic deaths increased for seven quarters in a row during the pandemic, despite less traffic on the road.3 Empty roads led to increased speeds, with deadly effects. Fatalities have begun to decline more recently, but are still above pre-pandemic levels.
- A shortage of used cars: One of the largest sources of high-quality used cars is leased cars. Cars are usually leased new, and when the lease ends, they are sold as used cars. However, during the pandemic, people drove less and faced more economic uncertainty, so the volume of car leases dropped. There are about 2.5 million fewer cars coming off lease between 2023-2025 compared to the three years before that.4 The price of insurance is in part determined by how much a car is worth, and since the shortage of used cars drives up the price, it also makes insurance more expensive.
When will car insurance prices moderate?
From our perspective, insurance companies reacted a little slowly to the changing environment. This isn't surprising, in part because it's hard to see a trend until it persists for a while. And, insurance companies need to get rate increases approved by state regulators, which can be a time-consuming process.
However, now many insurance companies are pulling out of markets where they can't make money. Rate increases have been prevalent, and insurance down payments have been increased. Rate levels are catching up with costs, and inflation in the economy overall is starting to drop. We expect to see rate increases slow as we move into 2024.
What can I do about more expensive car insurance?
There are several steps you can take to make sure you're getting the best deal for the coverage you need:
- Shop around - Each insurance company has its own pricing model and they can vary a lot. Either get an independent insurance agent to shop several companies for you, or get at least three quotes from companies that sell directly to consumers.
- Increase your deductibles - Increasing your deductibles from, say, $500 to $1000 on collision and comprehensive coverage will reduce the price you pay. Just make sure you have the savings to pay for the deductible if you need to. If you have a loan or lease on your vehicle, double-check to make sure you are following the lender or lessor's rules on maximum deductibles.
- Remove any coverage you don't need - If you work mostly from home and don't really need to drive, for example, you may not need rental car coverage if your car is being repaired. Or, if you belong to a motor club and get roadside assistance from them, you don't also need to have it on your car insurance.
- Maximize discounts - Ask your insurance agent to run you through common discounts to see if there are any you now qualify for. If your auto and home (or condo or renters) are with different insurers, get a quote for combining the two to see if the multi-policy discounts help.
Check out the rest of our blog for more smart takes on car insurance, non owner auto policies, and subscription car coverage.