Auto Insurance Rate Increases Are Shocking, But Shouldn't Be a Surprise

Car owners are receiving their annual auto insurance notices in the mail, but their accompanying rate escalations are leaving them shocked to find yet another cost increase. Auto insurance premiums are rising once more, causing U.S. households to increase their monthly budgets in order to keep up with inflation and the cost of living.

Regardless of past reported signals of inflation starting to halt, previous price leaps across industries are now beginning to affect related markets. This is causing prices in industries such as insurance to rise, even though it may initially appear delayed when compared to other goods and services.

Rising auto insurance rates

The price of auto insurance escalated up to 1.4% in January, making the total annual hike 20.6%. This is the fastest jump to date. Rates for auto insurance, however, have historically been surging in the last few years. In 2023, the average U.S. rate experienced a 24% raise from 2022. Prior to that, there was an average 29% increase in 2021. Auto insurance now is about 40% more expensive when matched up to the year 2019.

There are various possible components for the rates going on the rise again. During the global COVID-19 pandemic, automobile companies faced supply chain issues amongst high demand. This created an increase in price for both new and used vehicles as a result. Due to short supply, this has caused repairs and replacements to be more expensive as well.

Insurance companies are also revisiting their existing policies and updating areas in their findings. "While inflation is slowing down, insurance companies are reassessing their risk models to account for the post-pandemic rise in car crashes, the increase of claims from extreme weather and the sustained elevated cost of vehicle repairs," said Shannon Martin, a Bankrate analyst. "Remember that base rate increases can only be implemented at the renewal period, so some policyholders are still paying for the increase from 2023, and have yet to be hit with potentially higher 2024 rate renewals."

Aside from national factors, rates could also be going up due to a consumer’s personal profile. This can include locations such as urban areas because drivers are more prone to accidents from population density. Other elements may also involve age, gender, marital status, occupation, credit history and more. When any of these change, it could end up affecting the total cost, with potential to either increase or decrease the amount.

An unpleasant surprise

The news of the rising auto insurance comes as a shock to a majority of consumers. In a recent survey conducted by FinanceBuzz, 72% of individuals confirmed that the increase caught them off guard initially. Those with auto insurance may now have to allocate a higher budget to their monthly bills.

Were you surprised by how much your rates went up?
Yes	72%
No	28%

Despite the rising rates, there are reports indicating that inflation may be beginning to slow down when compared to 2023. As of January, the overall inflation rate is showing signs of decreasing, declining from 3.4% to 3.1% according to the Bureau of Labor Statistics. Consumers, however, have not seen the decline in necessities such as food and gas. Prices remained steady at 3.9% in December.

While inflation may be cooling down collectively, increased auto insurance prices demonstrate that not all prices of goods and services are dropping reactively.

Ways to save on auto insurance

Auto insurance costs may be on the rise, but there are also a handful of methods consumers can partake in to save a few extra dollars. In some cases, staying loyal to an insurance company may cause more harm than good. Those that do not stay loyal to their provider and shop around, may find better rates elsewhere.

If consumers have had accidents or forgot to make a payment while under the care of the current provider, then they may be paying higher rates as a result.

In another survey question conducted by Financebuzz, 42% of people haven’t considered switching their auto insurance. Comparatively, 44% have thought of making the move to another company, but they didn’t officially shift. Only 11% have changed their coverage once, and 3% have redirected to more than one company.

Have you switched your auto insurance provider in the last 12 months?
Yes, once	11%
Yes, more than once	3%
No, but I considered it	44%
No, and I haven’t considered it.	42%

Bundling different coverage types under one insurance company is an additional way to save money. In the same survey, 46% of people say that they’ve opted into having their auto and home insurance under the same provider and it has saved them from extra costs.

In the last year, have you bundled your auto and home insurance with the same provider?
Yes, and it saves me money	46%
Yes, but it doesn’t save me money vs. having separate providers	8%
No	46%

One thing to keep in mind though is that bundling may not always be the best deal. 8% in the survey reported that packaging both together doesn’t save them any additional costs. Depending on the insurance company, it may be a better deal if you split policies among a couple of different providers.

Bottom line

While the cost of auto insurance premiums are on the rise, there are a few alternative options consumers can take with their providers to cut down existing costs and save money on car insurance.

Compared to last year, consumers on average now have to spend an extra $213 per month in order to receive the same needed goods and services. With other active price hikes like auto insurance, more U.S. households may need to rebudget in order to keep up with inflation-related costs.