Auto insurance rates have soared over the past few years as supply chain issues and inflation have wreaked havoc on the economy. As inflation starts to cool and the Federal Reserve eyes rate cuts in 2024, many are curious if car insurance rates’ upward trend will come to an end.
Based on our research and findings, you can likely expect more rate hikes. In this article, we at the Marketwatch Guides team will take a look at why insurance prices have climbed so high and what the outlook is for the next year.
Key Takeaways
- The average U.S. car insurance premium increased 19.2% from 2022 to 2023.
- Auto insurers have also faced increasing costs in recent years when it comes to expenses like vehicle repairs, car replacements, and health care. This has contributed to the increasing premiums policyholders face.
- Auto premiums are unlikely to go down in 2024, but car owners have several ways to help reduce the cost of their insurance policies.
How Much Has Car Insurance Risen?
According to the Bureau of Labor Statistics (BLS), the consumer price index for car insurance increased by 19.2% between November 2022 and November 2023. That’s on top of multiple years of significant auto insurance rate hikes, as seen in the chart below:
To get a better picture of how car insurance rates tie into the year-over-year increase in car ownership costs, we looked at other auto-related price changes as well. While used cars and vehicle parts and equipment slightly decreased in price, everything else got more expensive on average.
| Automotive Product or Service | Change in Price From November 2022 to November 2023 |
| New vehicles | 1.3% |
| Used vehicles | -3.8% |
| Auto insurance | 19.2% |
| Vehicle maintenance and repair | 8.5% |
| Vehicle parts and equipment | -1.5% |
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5 Factors That Contribute to Higher Auto Insurance Rates
Car insurance companies don’t raise rates arbitrarily. To ensure that they can pay out claims, auto insurers must charge enough to cover damages without dipping into reserves. With increasing costs across various parts of the automotive industry, from higher average repair costs to continuing supply chain issues, auto insurance companies have needed to raise rates to turn a profit.
Here are the five key factors that have contributed to increased car insurance rates:
1. Record Inflation Rates
It’s no secret that since the COVID-19 pandemic, inflation has skyrocketed. The Federal Reserve raised rates 11 times between 2022 and 2023 in an attempt to cool soaring prices. The plan generally worked, with inflation decreasing from its record high of 9.1% in June 2022 to a rate of 3.4% in December 2023.
When inflation rises, however, so do prices, and cost increases tend to get baked into the economy whether inflation drops or not. If everything is more expensive, companies pass extra costs on to consumers. As inflation begins to drop, maintaining higher prices is a good way for companies to regain lost profits.
2. Increasing Car Repair Costs
The cost of vehicle maintenance has increased almost 36% over the past five years. Expensive cars like luxury vehicles and high-end sports cars — those with higher repair costs to begin with — were always pricier to insure. But now that repair costs have increased across the board, insurance companies have begun to quickly hike rates to keep up.
3. Recovering Supply Chains
When the COVID-19 pandemic began in 2020, global supply chains shuddered and snapped in response. Carmakers had to put production on hold and parts manufacturers saw orders decrease, leading many plants to shut down permanently. A global chip shortage contributed to significant slowdowns in automotive production as well, and all of this led to a surge in automobile prices.
The United Auto Workers (UAW) strike in the fall of 2023 affected supply chains once again, especially concerning parts manufacturers. As workers walked off the job, production at many of the Big Three’s plants came to a standstill. The result was a decrease in parts orders, which in turn led to additional small businesses laying off workers or closing altogether. This has contributed to increased costs for vehicle replacement parts and equipment.
4. Higher Health Care Costs
Rising health care costs affect auto insurance rates in more ways than most drivers realize. Many states require drivers to hold medical payments coverage (MedPay) or personal injury protection (PIP). These coverages help to pay for medical expenses that result from car accidents.
Data from the Centers for Medicare and Medicaid Services shows that health care spending in the U.S. increased by 10.6% in 2020, 3.2% in 2021 and 4.1% in 2022. As health care becomes less affordable, auto insurance companies charge more for these coverages to compensate.
5. Climate Change
Climate change is a huge and steadily growing factor in the increase in auto insurance prices. As weather patterns become more unpredictable, insurers will increase the cost of policies to compensate for the increase in weather-related damage. Some may even stop offering car insurance in certain areas altogether.
For example, in Florida, the increase in flooding events due to hurricanes and other inclement weather led several companies to discontinue services. The providers that remain in Florida can then raise prices due to decreased competition for a product that’s required for all Sunshine State drivers.
As catastrophic climate events like forest fires, snowstorms and flooding occur more regularly, expect insurance providers to react by raising rates.
Price Trends Don’t Seem To Be Slowing
A recent report from financial advisory firm Deloitte found that the insurance industry had a tough year financially. Quoting Nicole Mahrt-Ganley of the American Property Casualty Insurance Association, the report asserts that insurers are “facing the hardest market in a generation” thanks to economic headwinds like an increase in payouts, catastrophic weather events and stubborn inflation.
In addition, consumers seem to be gravitating more toward electric and hybrid vehicles than ever before. Those cars have more complex parts that are expensive to repair, so companies raise their rates in order to keep decent profit margins.
Deloitte also found that increasing numbers of consumers shopped for car insurance more frequently in 2023, raising concerns about the cost of customer acquisition and retention.
Essentially, auto insurance companies are trying to adapt to an unpredictable market. They haven’t fully absorbed the shocks from 2020 yet and new challenges keep appearing. Until things settle down, car insurance rates are likely to remain stubbornly high.
Ways for Consumers To Keep Insurance Costs Down
Even in the face of record-high car insurance rates, there are a few steps that consumers can take to keep costs as low as possible.
- Seek out discount opportunities: Most insurance providers offer discounts if you have multiple drivers or vehicles on your policy. Some also offer savings for good students. Ask your agent about any car insurance discounts that you may be eligible for.
- Compare quotes from multiple insurers: It’s always a good idea to compare policy quotes from at least two providers when shopping for auto coverage to find the cheapest option for you. That way, you’ll get a sense of how much you could pay and will have a better chance of finding the best price for your chosen type of coverage.
- Raise your deductible: If you can pay a higher deductible out of pocket when repair needs arise, your monthly premium will decrease.
- Opt for less coverage: If you don’t drive very often, you may want to look into dropping certain coverage types to save money. You can always adjust the types of coverage and coverage limits included in your policy in the future.
- Bundle car insurance with other products: Almost every major insurance company gives a price break to policyholders who combine their auto coverage with homeowners, renters or life insurance. It may be smart to consolidate all of your coverage plans under a single company to save money.
While you’re unlikely to catch a break from soaring car insurance rates in 2024, following these steps could help you keep your auto premium in check.
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