Why Car Insurance Rates Are Skyrocketing In The U.S.

This is the car I use and it is considered the family car. This car here is my husband's car. This one we actually have for my youngest daughter. This is probably the cheapest car in terms of

insurance

coverage. Car

insurance

has become expensive. The average annual premium for comprehensive auto insurance in the US increased 26% in 2024 from the previous year to $2,543. Fewer auto mechanics, a tighter supply of used vehicles, record health care bills and litigation are driving price increases. If these rate increases continue to increase, I'm not so sure we'll all be able to own cars, because I don't think we'll be able to continue insuring our cars as a family.

We are a middle class, two income family, and we are still trying to figure out how we can get by month to month. It's fair to say that in recent years, the average consumer has seen an increase of more than 20% in their car insurance premiums. Some have seen much more than that. Higher premiums have resulted in an increase in the number of uninsured drivers. It also coincides with higher stock prices for the country's top auto insurers. The progressive had an incredible quarter. It's driving up all the insurers. This group has been very hot. People love insurers.

But there are also other factors that affect auto insurance

rates

. Cars are becoming more expensive to repair and American drivers are becoming more reckless. In 2019 and 2020, there were an average of 3.8 million emergency room visits for car accident injuries annually in the U.S. The following year, more than 6.1 million car accidents were reported to police . Everyone has a story about something crazy they saw on the road or just more people driving, you know, texting on their phones and stuff like that. Car accidents will cost Americans an estimated $498 billion in 2021. So what's really behind the rise in auto insurance

rates

?

How do insurers set that rate, and what impact are rising premiums having on consumers and large publicly traded companies like Allstate, Progressive and Berkshire Hathaway's Geico? Dawn King lives with her husband and two daughters in suburban New Jersey, an area with limited public transportation. With four full-time workers and four cars, the family has faced an uphill battle paying for car insurance in recent years. In September 2023, I got a renewal and it went up to about $3,100 for four drivers, four cars for six months. I just got my renewal policy last week and it went up again, and now I'm paying about $3,900 for those same four drivers and four cars.

By government mandate, most states require some type of car insurance to drive legally. New Jersey saw its total auto insurance premium increase 45% in 2024 from the previous year, to $2,555. Americans, on average, spend 3.4% of their income on comprehensive auto coverage. My car and that of my oldest daughter are the two most expensive on the policy. Because they are leased vehicles, the auto insurance company requires higher coverage for those vehicles. We are faced with the decision of whether to actually contact our insurance, because it seems that when something unfortunate happens, we have to deal with the penalty of filing a claim and then having to pay even more. of the increase in premiums that we are already receiving.

In an attempt to reduce her rate, King took a self-defense driving course, downloaded an app to monitor her driving, and was advised by her insurance agent to run a credit check. If things continue, it's pretty difficult to deal with because it puts us at a point where we have to decide, well, how little coverage can we get by with if it keeps costing more and more? As a family that is simply a middle class family that is struggling to make ends meet with everything that has increased since the pandemic, I feel like we don't know what to do.

With fewer drivers on the roads and a decline in accidents at the start of the pandemic, auto insurers reimbursed their customers billions of dollars in April and May 2020. But as supply chain problems increased and inflation rose, those insurers faced higher costs for everything from parts and labor to litigation and vehicle rentals. So it went from a premium environment for consumers, where they get a check in the mail or an electronic deposit from their insurers, to a renewal notice for their auto insurance policy, and they see a 10%, 20, 30.% increase in your premium. In 2022, U.S. private auto insurers were facing their worst underwriting results in more than two decades.

The top ten auto insurance companies account for more than 75% of auto policies in the U.S. Over the past two years, auto insurers as a whole have lost money writing auto insurance because the cost of paying Claims and other underwriting costs are greater than premiums. The combined ratio, a profitability measure used by insurance companies to measure their performance, is calculated by taking the total losses and expenses incurred and dividing it by the premiums earned. Any value greater than 100% means an unprofitable year. So having a combined ratio of 112 for 2022 was absolutely horrible, and some companies did much worse than that.

Inflationary headwinds were not the only challenge insurers faced in recent years. At that time, 2016 and 2017, the use of iPhones had just taken off in the car and many accidents occurred as a result. He was also driving under the influence of marijuana. This shows that these insurance companies need to be on their toes, right? Because if it doesn't, it could end up in another situation like 2016-17 or the horrible situation we've seen in the last three years. So when you think about it, they really need to get the price in order to be profitable. To cut their overhead costs, insurers cut staff and cut their advertising budgets.

Farmers Insurance laid off about 2,400 people, or 11% of its employees, in 2023, Geico reduced its advertising spending by $800 million to $1.2 billion in 2022 from a year earlier, or a 38% decline. But it was the higher premiums that had the biggest impact on the insurer's bottom line. In 2023, most large auto insurers increased their rates by double digits. In the last 12 months. We are in an environment where essentially all insurers have aggressively raised premiums, and that has led to an environment where the consumer, the insured, goes out to buy auto insurance and realizes that they can't get one. insurer, cannot find an insurer that has a lower premium for them.

I knew there were going to be price increases due to inflation. And in the wake of the pandemic, there was some supply shortage, repair costs increased, so something was going to happen. But insurance companies have gone too far. And the prices we're seeing now are really out of scale with the cost of inflation. In an email to CNBC, Allstate said we provide affordable coverage and help customers save money with discounts like bundles and products based on how they drive. With their improved margins, insurers like Allstate and Progressive could be entering a new phase of growth, analysts say.

You are starting to see improvement year after year. Most books are not very profitable yet, but they are on the right track. While vehicle type and driving history have a major impact on your auto insurance rate, not everyone pays the same amount. New Yorkers with bad credit, for example, were charged nearly three times as much as residents with excellent credit. Except in California, Massachusetts and Hawaii, where it is illegal to use credit scores. If you have a low credit score or even a fair credit score, you know, 650, 700, you're going to pay a lot more for car insurance than someone with a very high credit score, even if you have a perfect credit score. driving history.

In fact, in most states with an excellent credit score, you can have a drunk driving conviction and still pay a lower rate than a good driver with a low credit score. Insurers say drivers with good credit are less likely to file insurance claims. They don't use your credit score, but they use elements of your credit score. It's called a credit-based insurance score and it has been shown to be one of the most predictive things about whether or not you will have claims on the cost of car insurance. Other socioeconomic factors that increase rates for low-income drivers include having a manual job versus a professional degree, lacking a college degree, being single, divorced or widowed, or renting versus owning.

Your home address is also a factor. According to a 2015 report, insurers charge premiums on average 70% higher to drivers from predominantly minority communities compared to drivers from non-minority communities. I think it would help consumers to remember that, in most cases, their auto insurance premiums are not set at the individual level. They are established based on a group of people similar to you. About 215 million Americans have auto insurance. The market is valued at approximately $353 billion in 2023. As insurance premiums have skyrocketed, so has the number of uninsured drivers. While estimates of the number of uninsured drivers in the U.S. vary from as low as 5% to more than 10%, the number appears to be increasing.

If you are making a decision between paying these higher premiums, you may see a 10, 20, 30 or more percent increase in your premium payment to your auto insurer, and you are deciding between that and paying other bills that they are arriving. , put food on the table, etc. A larger proportion of consumers than in the past have shown that they are willing to drive without insurance. Driving without insurance can result in severe fines, confiscation of your car, or even jail time. It also makes it more expensive for insured drivers. But what worries safety officials most is the increase in deaths in car accidents.

While the accident death rate in the U.S. has fallen about 90% from its 1920 levels in recent years, the number of deaths has increased. The number of traffic deaths in the US increased more than 16%, from 36,000 in 2018 to an estimated more than 42,000 in 2023. Increasingly complex dashboards, larger and heavier cars , the opioid epidemic and the legalization of cannabis may be contributing factors. . When there are more accidents and when the cost of those accidents is higher, that means the costs are higher. That is the basis of what we all pay. Another trend that alarms auto safety advocates is the volume of people texting, surfing or staying glued to their mobile device while behind the wheel.

Distracted driving, which includes cell phone use, eating, and talking to other passengers, claimed more than 3,500 lives in the U.S. in 2021. American drivers overall spend nearly three times as much time looking at their cell phones while driving. drive than their UK counterparts. . Improvements in car safety features may be giving drivers the false impression that they can spend less time focusing on the road. But what can drivers do to save money on auto insurance? Bundling your home and auto insurance can save an average of 14%. Other tips include raising your deductible, maintaining good credit, shopping for better rates, and paying your annual premium up front.