Here’s what you need to know about rising car insurance premiums – and what you can do about it.
Skyrocketing auto insurance premiums are contributing to the ongoing inflation crisis, exacerbating the financial strain on millions of American households. According to the Labor Department, consumer prices rose 0.4% in March from the previous month and 3.5% from the same time last year, exceeding economists’ forecasts.
While rent and groceries played a significant role in the unexpectedly high inflation reading, few categories experienced as substantial a jump as auto insurance. The cost of auto insurance surged 2.6% in March, resulting in a staggering 22.2% annual gain – the fastest yearly rate on record. Compared to pre-inflation crisis levels in early 2021, motor vehicle insurance is now more than 50% more expensive.
Experts caution that the situation could deteriorate further before any improvement is seen. Shannon Martin, a Bankrate analyst, explained that the auto insurance industry has been grappling with losses in recent years due to inflation driving up the costs of vehicle parts, products, and repairs.
In 2023, the average U.S. rate for full auto insurance reached $2,019, a 24% increase from $1,633 in 2022 and a nearly 29% jump from $1,567 the previous year, according to Insurify. This amounts to approximately 3.4% of the median household income. Even bare-bones policies mandated by states climbed to $1,154 per year in 2023.
Several factors have contributed to the dramatic rise in car insurance rates. The COVID-19 pandemic led to supply chain disruptions and unusually high demand, causing prices of both new and used cars to increase sharply. This, in turn, has made vehicles more expensive to replace and repair, driving up insurance premiums.
Additionally, the country is facing a shortage of mechanics, further pushing auto repair costs higher. The TechForce Foundation estimates that the number of graduates completing post-secondary programs in the automotive sector has dropped by 20% since 2020, with the number of automotive technicians projected to continue decreasing in the coming years.
Car insurance companies are also attempting to recover from significant losses incurred in 2021 due to a sharp increase in fatal car accidents. As a result, they have filed for rate increases to recoup the money lost during that period.
The impact of soaring auto insurance premiums is felt most acutely by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations. According to calculations by Moody’s Analytics chief economist Mark Zandi, the typical U.S. household needed to pay $227 more per month in March to purchase the same goods and services it did one year ago due to chronic inflation.
As the financial pressure mounts, experts advise consumers to carefully consider car insurance rates before purchasing a vehicle to avoid any surprises. The auto insurance industry’s challenges, combined with the broader inflationary environment, are likely to keep premiums elevated in the near future, further straining American households.
