A lot has changed in the time since Gerald Ford was president and Steve Jobs and Steve Wozniak founded Apple. But here’s something that hasn’t changed much: the pace at which car insurance rates are rising.
Car insurance rates are up almost 21% for the 12 months ended in February, according to new Consumer Price Index data released Tuesday. The last time car insurance rates rose that much on an annual basis was 1976, not counting January, which saw the same annual rate increases.
The rise in car insurance rates alone contributed half a percentage point to the overall 3.2% inflation rate last month. It represents one of many obstacles standing in the way of the Federal Reserve’s 2% inflation goal and continues to be a pain point for Americans struggling with some of the highest prices in decades.
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A confluence of factors is behind the trend.
Rising car repair costs
The cost to repair a car is up 6.7% for the year, according to CPI data. That’s a much slower rate compared to recent years. But it’s still much more expensive compared to before the pandemic, said Tim Zawacki, principal research analyst at S&P Global Market Intelligence.
Contributing to the rising cost of repairing a car are more expensive auto parts and wage increases for car mechanics due to labor shortages, Zawacki told CNN.
More severe and frequent car accidents
The number of traffic deaths in the U.S. was up by around 7,000 in 2022, to 42,795, compared to before the pandemic, according to the National Highway Traffic Safety Administration’s latest estimates.
Motor traffic stacks up Sept. 23 on 405 Freeway in Long Beach, California. Car insurance rates are at a nearly 50-year high and another pain point for Americans struggling with some of the steepest prices in decades.
That has led to an increase in claims that is well above historical averages because of their severity, according to LexisNexis Risk Solutions data. Their data indicates that insurers booked losses on 27% of collision claims in 2022. That’s three percentage points higher than 2021.
LexisNexis also attributes that rise to riskier driving behaviors such as speeding, texting behind the wheel and driving under the influence of either drugs or alcohol.
Beyond the repair costs associated with more severe car damage, they also “tend to lead to a higher share of claims with attorney representation, which usually ends up being more costly for insurers,” said Zawacki.
Not all states have it quite as bad
There’s a lot of variation from state to state regarding the car insurance rate increases that drivers are facing. That’s partially because auto insurers price their plans based on the losses they’re incurring on a state-by-state basis, Robert Passmore, vice president for personal lines at American Property Casualty Insurance Association, a trade group representing insurers, previously told CNN.
Nevada drivers saw the highest jump — an increase of 38% — in car insurance rates across all states besides Wyoming from January 2023 to February of this year, according to data S&P shared with CNN. (Wyoming wasn’t included because S&P couldn’t collect data from the state.) The minimum required coverage policy that drivers in the Silver State have costs the most across all states, according to Bankrate data as of last month.
Meanwhile, drivers in North Carolina saw the smallest bump in car insurance rates, up just 5.5% over that same timeframe. That’s partially due to the state’s unique format that includes a rate bureau that submits filings on behalf of the entire industry. That bureau settled on a 4.5% average statewide increase for 2023 and another 4.5% increase in 2024.
“We do expect trends to moderate on a national basis over the course of the year, particularly in the second half of 2024,” Zawacki said. “But that doesn’t mean drivers in some markets won’t continue to see rate increases.”
Car insurance costs are rising faster than overall inflation—here’s a closer look
Car insurance costs are rising faster than overall inflation—here’s a closer look
The cost of car insurance shot up 19% in just one year, the latest Bureau of Labor Statistics data shows, significantly more than the overall inflation rate of 3%.
The vast increase outpaced every other spending category tracked by the BLS in November. It is strikingly out of place alongside otherwise cooling inflation. What’s more, the cost of new cars grew just 1.3% since last year after a period of record highs, and the cost of used cars and trucks actually fell.
So why the increase in car insurance costs? CheapInsurance.com identified reasons insurance costs are spiking, and compared historical inflation to the rising cost of car insurance using BLS data.
While the past year’s insurance premium spikes have been particularly jarring, car insurance costs have increased faster than overall inflation for most of the past decade. That’s largely due to faster cost increases in vehicle repairs, medical care, and (to some extent) legal costs, which all directly affect insurance agencies’ expenses.
Ownership and use of cars are also on the rise, meaning more congested roads and, in turn, more accidents. To top it off, distractions while driving have surged in the age of technology, again causing costly crashes that insurance providers must cover.
Repair frequency and costs drive up car insurance premiums
Riskier driving habits, expensive repairs, and severe weather events are largely to blame for the recent spike in car insurance premiums.
Traffic fatalities have dropped from 2021 highs but remain elevated compared to pre-pandemic levels, Department of Transportation data shows. Insurance Information Institute CEO Sean Kevelighan told NPR that people “picked up some risky habits” during the pandemic, when stay-home orders meant fewer cars on the road. The return of denser vehicle traffic hasn’t tamed those behaviors.
More accidents have increased the need for services. Paired with higher labor costs, mechanic shortages, more challenging repairs in tech-enabled cars, and continuing supply chain issues, the cost of car repairs is up 8.5% annually as of November. As insurers are often the ones footing the bill, they have increased their prices in turn.
Natural disasters like hurricanes and floods also contribute to the rising costs. As climate change causes more severe and frequent extreme weather events, insurance companies must cover more claims. Losses due to catastrophes in the first half of 2023 were the highest in over 20 years, according to the Insurance Information Institute. Areas more prone to extreme weather, like Florida, are especially feeling the heat as insurance companies raise rates even higher or pull out altogether.
U.S. personal auto insurers are operating at an underwriting loss, meaning that the premiums paid by their customers don’t fully cover the costs insurers pay out in claims each year. III executive Dale Porfilio said the industry likely won’t become profitable again until 2025. For drivers, that will likely mean continued insurance cost bumps.
Story editing by Ashleigh Graf. Copy editing by Kristen Wegrzyn.
This story originally appeared on CheapInsurance.com and was produced and distributed in partnership with Stacker Studio.
Based in New York, Stephen Freeman is a Senior Editor at Trending Insurance News. Previously he has worked for Forbes and The Huffington Post. Steven is a graduate of Risk Management at the University of New York.