Why Car Insurance Rates Are Skyrocketing In The U.S.
This is my car that I use
and it's considered the family car. This car over
here is my husband's car. This one that we actually
have for my youngest daughter. This is
probably the cheapest car for insurance coverage. Car insurance has gotten
expensive. The average annual
premium for full auto insurance in the US
spiked 26% in 2024 from the previous year to
$2,543. Fewer auto mechanics, a
tighter supply of used vehicles, record health
care bills and litigation are fueling rising
prices. If these rate increases
continue to go up, I'm not quite sure that we would
all be able to have cars, because I don't think we
would be able to continue to insure our cars as a
family. We're middle class income,
family, two incomes, and we're still trying to
figure out how can we actually get by on a
month to month basis. It's fair to say in the
last couple of years, the average consumer has seen
over a 20% increase in their auto insurance
premiums.
Some have seen much more than that. Higher premiums have
resulted in an increase in the number of uninsured
drivers. It is also coincided with higher
stock prices for the nation's leading auto
insurers. Progressive had an
incredible quarter. It's driving all the
insurers up. This group has been very
hot. People love the insurers. But there are other
factors impacting car insurance rates, too. Cars are becoming
costlier to fix and American drivers are
becoming more reckless. In 2019 and 2020, there
were an average of 3.8 million emergency room
visits for injuries from car crashes annually in
the U.S. The following year, more
than 6.1 million motor vehicle crashes were
reported to the police.
Everybody's got a story
about something crazy that they saw on the highway
or just more people driving around, you know,
texting on their phones and things like that. Motor vehicle crashes cost
Americans an estimated $498 billion in 2021. So what's really behind
the spike in auto insurance rates? How do insurers set that
rate and what impact are rising premiums having on
consumers and the large publicly traded companies
like Allstate, Progressive and Berkshire Hathaway's
Geico? Dawn King lives with her
husband and two daughters in suburban New Jersey,
an area with limited public transportation.
With four full time
workers and four cars the family has faced an
uphill battle paying for car insurance in recent
years. In September of 2023, I
got a renewal and it went up to about $3,100 for
four drivers, four cars for six months. I just got my renewal
policy last week and it went up again, and I'm
now paying close to $3,900 for those same four
drivers and four cars. Mandated by the
government most states require some type of car
insurance to drive legally. New Jersey saw
its full auto insurance premium rise 45% in 2024,
from the year prior to $2,555. Americans, on
average, spend 3.4% of their income on full auto
coverage. My car and my oldest
daughter's car are the two expensive ones on the
policy. Because they are leased vehicles the car
insurance company requires a higher coverage on
those vehicles. We're faced with the
decision of if we actually even contact our
insurance, because it feels as though when
something does unfortunate happen, we have to then
deal with the penalty of actually filing a claim
and then having to now pay even more on top of the
increased premiums that we're already getting.
In an attempt to lower her
rate, King took a self-defense driving
course, downloaded an app to monitor her driving,
and was advised by her insurance agent to run a
credit check. If things continue, it's
pretty hard to deal with because it it then puts
us at a point where we have to decide, okay,
well, how little coverage can we actually get by
with if it keeps costing more and more? As a family who is just a
middle class family who's struggling to make ends
meet with everything that has increased since the
pandemic, I feel like we're kind of at a loss
on what to do.
With fewer drivers on the
road and a decrease in accidents at the start of
the pandemic, auto insurers refunded
customers billions of dollars in April and May
of 2020. But as supply chain
issues mounted and inflation rose, those
insurers faced increased costs for everything from
spare parts and labor to litigation and car
rentals. So went from an
environment of prizes for consumers, where they're
receiving a check in the mail or an electronic
deposit from their insurers to they get a
renewal notice for their auto insurance policy,
and they're seeing 10%, 20, 30% increases in
their premium. By 2022 private U.S. auto insurers were facing
their worst underwriting results in more than two
decades. The top ten car insurance
companies represent more than 75% of auto policies
in the U.S.. The last two years, auto
insurers as a whole have lost money writing auto
insurance because the cost of paying claims and
other underwriting costs are greater than the
premiums are bringing in.
The combined ratio, a
measure of profitability used by insurance
companies to gauge their performance, is
calculated by taking the total of incurred losses
and expenses, and dividing that by the earned
premiums. Anything over 100% means an
unprofitable year. So having a 112 combined
ratio by 2022 was absolutely horrible, and
some companies did a lot worse than that. Inflationary headwinds
weren't the only challenge insurers faced in recent
years. At that point in time,
2016 and 2017, use of iPhones just took off in
the car and a lot of accidents occurred as a
result. There was also driving
while under the influence of marijuana. It shows that these
insurance companies need to be vigilant, right? Because if they're not,
you could end up in another situation like
2016 and 17 or the horrible situation that
we've seen in the last three years.
So they
really, when you think about it, they really
need to get the price in order to be profitable. To slash their overhead
insurers trimmed staff and cut back on their ad
budgets. Farmers Insurance laid off about 2,400
people, or 11% of its employees, in 2023, Geico
slashed its advertising spend by $800 million to
$1.2 billion in 2022 from the year prior, or a 38%
decrease. But it was higher
premiums that had the biggest impact on the
insurer's bottom line. In 2023, most large auto
insurers increased their rates by double digits. In the past about 12
months. We're in an environment
now where essentially all insurers have
aggressively increased premiums, and that has
led to an environment now where the consumer, the
insured, is out shopping for auto insurance and
finding that they cannot get an insurer, they
cannot find an insurer that has a lower premium
for them. I knew that were going to
be price spikes due to inflation. And in the
wake of the pandemic, you know, there were some
supply shortages, repair costs have gone up, so
there was going to be something.
But the
insurance companies have taken it way too far. And the prices that we're
seeing right now are really out of scale with
the cost of inflation. In an email to CNBC,
Allstate said we provide affordable coverage and
help customers save money with discounts like
bundling and products based on how they drive
like drive wise. According to analysts,
with their margins improved, insurers like
Allstate and Progressive could be entering a new
phase of growth. You're starting to see
year-over-year improvement. Most books
are not quite profitable yet, but they're on the
path. While your vehicle type
and driving record have a major impact on your auto
insurance rate, not everyone pays the same
amount. New Yorkers with poor
credit, for example, were found to have been
charged almost three times the amount as residents
with excellent credit. Other than in California,
Massachusetts and Hawaii, where it's illegal to use
credit scores. If you have a low credit
score or even just a fair credit score, you know, a
650, 700, you're going to pay a lot more for auto
insurance than somebody with a very high credit
score, even if you have a perfect driving record.
In fact, in most states
with an excellent credit score, you can have a
drunk driving conviction and still pay a lower
rate than a good driver with a poor credit score. Insurers say drivers with
good credit are less likely to file insurance
claims. They don't use your credit
score, but they use elements of your credit
score. It's called a credit-based insurance
score, and it's proven to be one of the most
predictive things of whether or not you're
going to have claims in an auto insurance cost. Other socioeconomic
factors that push up rates for lower income drivers
include having a blue collar job versus a
professional title, lacking a college degree,
being single, divorced or widowed, or renting
versus owning.
Your home address is also
a factor. According to a 2015
report, insurers charge premiums on average 70%
higher to drivers in predominantly minority
communities compared with drivers in non-minority
communities. I think it would help
consumers to remember in most cases, your auto
insurance premiums are not being set at an
individual level. They're being set based
on a group of people that are similar to you.
Around 215 million
Americans own auto insurance. The market is
valued at roughly $353 billion in 2023. As insurance premiums have
spiked, so too have the number of uninsured
drivers. While estimates on the number of
uninsured drivers in the U.S. Vary from as little
as 5% to over 10%, the number appears to be
increasing. If you're making a
decision between paying these higher premiums
that you might see a 10, 20, 30 or greater percent
increase in your premium payment to your auto
insurer, and you're deciding between that and
paying other bills that are coming in, putting
food on the table, etc.
A greater share of
consumers than in the past have shown that they're
willing to drive uninsured. Driving without insurance
can trigger severe fines, impounding your car or
even jail time. It also makes it more
expensive for insured drivers. But it is the
increase in auto deaths that has safety officials
most concerned. While the death rate for
crashes in the U.S. Has fallen about 90% from
its 1920 levels over the past few years, the
number of fatalities has increased. The amount of
traffic fatalities in the U.S. Increased more than
16%, from 36,000 in 2018, to an estimate of over
42,000 in 2023. Increasingly complex
dashboards, bigger and heavier cars, the opioid
epidemic and the legalization of cannabis
may all be contributing factors. When there are more
crashes and when the cost of those crashes are
more, that means the costs are higher. That's the
base of what we all pay. Another trend alarming car
safety advocates is the volume of people texting,
scrolling, or glued to their mobile device while
behind the wheel.
Distracted driving, which
includes cell phone use, eating and talking to
other passengers, claim more than 3,500 lives in
the U.S. in 2021. U.S. drivers in general
spend almost triple the amount of time looking at
their mobile phones while driving than do their UK
counterparts. Improved safety features
in cars may be giving drivers the false
impression they can spend less time focusing on the
road. But what can drivers do
to save money on auto insurance? Bundling your
home and auto insurance can save on average 14%. Other tips include
increasing your deductible, maintaining
good credit, shopping around for better rates,
and paying your annual premium in advance..
