If it seems like you’re paying more — a lot more — for car insurance, you’re not imagining it. Even as overall inflation has eased, car insurance costs shot up more than 20% in December 2023 from a year earlier, the biggest jump in nearly 40 years.
While car insurance rates vary based on location, demographics, number of car accidents, type of vehicle and other factors, costs are up for virtually everyone.
Here’s what experts say is behind inflated car insurance prices and what you can do to save money without sacrificing thorough coverage on your vehicles.
How much did car insurance increase over the last year?
According to the 2023 US Auto Insurance Study from J.D. Power, 31% of car insurance companies operating in the US enacted a rate increase last year. Overall, the industry reported an average price increase of 15.5% while some states, like Florida, saw rates rise as much as 88% over the past year.
Progressive estimates its average cost of car insurance for a liability-only policy ranges from $81-$146 a month. But you might pay far more than that depending on your coverage, driver demographics, vehicle value, and which state you live in.
9 ways to save on auto insurance premiums
When it comes to personal finance, the forecast isn’t all doom and gloom. Loretta Worters with the Insurance Information Institute says drivers can explore plenty of options before kicking their insurance company to the curb.
“Before changing your carrier,” Worters said, “consider some factors that can affect your rates and learn how an annual insurance checkup can position you to get the coverage right for you.”
1. Assess your coverage needs
The coverage types and levels you’re carrying now might not fit your situation anymore. Determine how much car insurance you need. Consider important factors such as your net worth, your risk tolerance, how much you have in emergency savings, the drivers on your policy and more to choose coverage that’s just right for your situation. And be aware of the minimum amount of car insurance required in your state.
2. Keep (or work toward) a clean driving record
Some factors that affect auto insurance prices, like age or gender, aren’t always within your control. But a careless at-fault accident or a speeding ticket can lead to a rate increase from your insurer.
3. Choose a cheaper car
Michael J. McCartin, president of Joseph W. McCartin Insurance and a Trusted Choice Independent Agent, encourages customers to contact an agent before they start vehicle shopping. “Call your independent agent before you purchase a new car. Some cars are less expensive to insure. Ask in advance about what an estimate of the premium might be.”
Here are the five vehicles that top Mercury Insurance’s 2023 list of the cheapest new cars to insure:
Toyota Prius Prime
4. Shop around to save on insurance
If you’ve been with the same company for a while, shop around for new car insurance quotes on a yearly basis. You can also consult with an independent insurance agent to see which insurer might be the best fit for your family or fleet of vehicles, or use an online comparison tool to shop rates for you.
5. Consider telematics
Most insurance companies now offer discounts through usage-based insurance. Drivers download an app or install a plug-in device that monitors mileage, driving habits, speed, and more.
According to TransUnion, the usage of telematics surged 33% in early 2022 as inflation drove drivers to seek out deeper discounts on car insurance.
6. Maximize insurance discounts
Insurance companies offer a full menu of discounts and it can be difficult to ascertain if you’re taking advantage of everything you’re eligible for.
Ask about student discounts, senior discounts, military and veteran discounts, and any discounts for safe driving, taking a defensive driving course, or enrolling in traffic school.
7. Bundle with your renters or homeowners insurance
McCartin, the agent, says drivers struggling with their insurance bill need to realize everyone is in the same situation.
“There are not a lot of options when it comes to auto insurance and reducing rates right now,” McCartin advises. “Bundle your coverage with the same company for home and auto for a bigger discount.”
8. Work to raise your credit score
What’s your credit score got to do with your car insurance? It turns out quite a lot. Insurance companies use a credit-based insurance score (CBIS) in their underwriting process to determine insurance rates. Making bill payments on time, paying down debt, and using credit cards responsibly will all improve your credit score and deem you less risky to insurers.
9. Avoid reducing your coverage.
You could try to raise your deductible or drop extra coverage, but carrying the minimum coverage on your vehicle that the state will allow is almost never advisable. Instead, try creative solutions to save money and reduce your insurance premiums, like enrolling in paperless billing, or paying annually.
“Take the highest deductible you can afford that makes sense,” McCartin warns. “But be mindful that at some point the savings does not justify the additional increase in a deductible.”
What’s causing car insurance rate hikes?
Curious why you’re suddenly paying more, even for the same car insurance policy?
Experts say rising car insurance premiums are a result of several factors converging over the past few years to create steep losses for insurance companies and thus a steep increase in insurance rates.
Here are just a few of the factors driving auto insurance rate hikes.
High repair costs
Rising repair costs are being attributed to more expensive auto parts, aging vehicles, supply chain concerns, and labor shortages. Similar to auto insurance rate hikes, the CPI reports the cost of vehicle maintenance and repairs rose about 20% for most customers in 2023.
McCartin says vehicle repair costs are indeed part of the problem. “Parts and labor costs have increased, many shops are short-handed so it takes longer to fix cars which means people are in a rental car for a longer period of time.”
Insurance company losses have hit historic highs as more frequent natural disasters and severe weather driven by climate change generate more claims for larger payouts. These types of catastrophic claims affect both auto and home insurance rates.
State Farm, one of the largest insurers in the US, received permission to institute more than 65 rate hikes across 29 different states in early 2023 due to extraordinary losses.
Rise in used car prices
Alongside other factors, the value of a used car can significantly affect the cost of coverage. Edmunds reports that used vehicle prices remain historically high with an average increase in value of 44% since 2018.
Increase in severity of insurance claims
When cars returned to the road post-pandemic, accident rates rose. State Farm attributed its unprecedented $13.2 billion underwriting loss in 2022 to the increased severity of auto insurance claims.
“It really is a convergence of factors, including rising insurer losses due to increasing accident frequency and severity,” Worters said. “There are also more fatalities and injuries on the road, leading to increased attorney involvement in claims.”