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Anyone who feels as if car insurance premiums have gotten way too expensive in the past few years is not hallucinating. Between February 2023 and February 2024, car insurance costs went up by 21%. So for example, a car insurance premium that cost $300 per month in February 2023 might cost $363 per month one year later.

Sometimes it seems like you need to be a math expert to understand car insurance prices. Fortunately, we talked to an actual math expert. Rick Gorvett, professor of Mathematics and Actuarial Science at Bryant University, offered math-driven commentary on why car insurance got so expensive.

Let’s see why car insurance prices went up so fast — and why drivers have reason to hope for cheaper car insurance on the horizon.

1. Pandemic rate volatility

Even though 20% annual increases in auto insurance are painful for drivers to accept, this is a necessary part of the car insurance market correcting itself and getting back to “normal” after the pandemic. “Current auto insurance premium levels now seem to be back on a historical trend line,” Professor Rick Gorvett said.

People drove a lot less during the pandemic, so car insurance got (temporarily) cheaper — fewer miles driven at a society-wide level means fewer car crashes, and fewer car insurance claims. Then people started driving again (and getting in more crashes) after the pandemic, and car insurance rates had to surge to keep up.

“During the pandemic, largely because of the reduction in risk exposure from people driving many fewer miles during the lockdowns, premiums decreased, and insurers often returned part of the paid premiums to their policyholders in recognition of this,” Gorvett said.

“When driving returned to more traditional exposure levels, auto insurers found that rates were inadequate and needed to be increased to produce a reasonable return on equity. This explains the spikes in premiums during the last couple of years.”

2. Car repair costs

Car insurance companies are ultimately in the car repair business. Whenever someone gets in a collision or suffers damage to their car, the insurance company helps pay the bills to fix the car — and unfortunately, the costs of car repairs have spiked in recent years.

“One cause is that vehicles have become more technologically sophisticated, making repair or replacement of electronic and computer-based components much costlier,” Professor Gorvett said.

“Indeed, even the initial engineering of new cars has changed, with more multi-component manufacturing. This promotes cost-effectiveness and efficiencies in the building process, but also results in greater costs associated with repairing or replacing a damaged component, since often the entire structure around that component must be replaced.”

Cars are more expensive, car parts are more expensive, and it all got much more expensive to repair and replace. This drives car insurance costs up for everyone.

3. Social inflation (a.k.a. lawsuits)

Another reason why car insurance is so expensive is a concept that Professor Gorvett calls “social inflation.”

“Social inflation is the long-recognized tendency for insurance loss costs to increase at a rate exceeding general consumer inflation,” Gorvett said. “This effect is largely due to the increasingly litigious nature of our society, resulting in greater numbers and sizes of tort awards and settlements.”

When people get hurt in a car accident, they have the right to take their case to court and sue the other driver’s insurance company for damages. Medical costs in America are so high that the cost of lawsuits and legal settlements for car crashes tends to rise faster than the average price of consumer goods on store shelves.

Car insurance companies have to keep raising their prices to stay profitable while covering these complex, ever-rising costs.

4. Distracted driving, riskier driving behaviors

Americans aren’t just driving more after the pandemic; they seem to be driving worse. Motor vehicle crash death rates have gone up since 2019. Professor Gorvett said that distracted driving is a big part of the risky behavior on America’s roads.

“Distracted driving is becoming an increasing problem,” Rick Gorvett said. “Advancements in available technologies — phones, GPS, and other electronics — tempt drivers’ attention away from focusing on the road.”

Another lingering effect from the pandemic is that drivers seem to be speeding more, according to Professor Gorvett’s observations. “During the pandemic, less-crowded roads caused drivers to engage in riskier behaviors such as speeding,” Rick Gorvett said. “Some of those habits have persisted despite the return to heavier traffic patterns.”

How to fight back against expensive car insurance

Drivers who are tired of paying higher prices for car insurance can use a few options to improve their household budget. Professor Rick Gorvett recommends shopping around for cheaper car insurance. Surprisingly, not everyone does this. The Motley Fool Ascent’s research found that only 26% of people shop around for price quotes on car insurance every year, and 20% of drivers have never shopped for car insurance.

Professor Gorvett also recommends telematics car insurance as an option for drivers to consider. This is also known as usage-based insurance or “safe driver rewards” insurance — but drivers must agree to share driving data with their insurance company, often via mobile app.

Bottom line

Car insurance cost increases might be slowing down and returning to normal after the pandemic. But drivers who aren’t happy with their car insurance company have options.

Shop around for cheaper car insurance, change to a lower-cost policy with different coverage or higher deductibles, or consider a telematics car insurance plan to get rewarded for safer driving behaviors based on driving data.

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