Why Are Auto Insurance Prices Increasing? Everything You Need To Know

We get this question all the time lately. Auto rates are increasing for pretty much everyone, often significantly. Everyone wants to know what happened. Well, there’s not one simple answer. It’s been a bit of a “perfect storm” in the insurance industry. Here are some things that have happened that have been impacting rates.

1. Repair issues:
   • Shortage of technicians. There is currently a shortage of technicians. As we are seeing in many of the trades, a significant gap between the demand for new technicians and the number graduating from programs leads to higher labor costs, extended repair durations, and increasing costs for insurers who cover rental cars during this period.
   • More Expensive Repairs. Modern vehicles equipped with advanced technology (e.g., backup cameras, emergency braking systems) have higher repair costs, with vehicle repair costs up nearly 20%.
   • Parts Shortages. Supply chain issues, despite slight improvements, keep parts prices elevated, contributing to higher repair expenses. This has caused some vehicles to be totaled, even when the accidents are relatively inexpensive, simply because no parts are available. This cost gets passed along to all insureds.
   • Higher Vehicle Replacement Costs. The semiconductor chip shortage has reduced vehicle availability, inflating car prices and replacement costs. Increased prices for new cars mean higher costs to replace totaled vehicles, driving up insurance premiums.
2. Increased Traffic and Accidents
   • More drivers. Post-pandemic, more drivers are on the road, leading to a rise in accidents and subsequent insurance claims.
   • Distracted Driving. The prevalence of smartphones and in-car entertainment systems has increased distracted driving incidents, raising the number of claims.
3. Rising Medical Costs
   • Higher medical expenses for injuries from accidents result in increased payouts by insurers are being passed on to consumers through higher premiums.
4. Severe Weather and Natural Disasters
   • More frequent and severe natural disasters cause significant vehicle damage, leading to more claims and higher premiums.These include teh frequency and severity of disasters like hurricanes, floods and wildfires.
5. Crime and Theft
   • Increases in vehicle thefts and catalytic converter thefts lead to more insurance claims, raising costs.
6. Economic Inflation
   • General inflation raises the cost of goods and services, including auto repairs and medical costs, leading to higher insurance premiums.
7. Regulatory Changes
   • New state and federal regulations can increase administrative costs for insurers, which are then passed on to consumers. Also, premiums are approved by states based on prior claims information. These approvals can be slow, which means that some carriers are playing a game of “catch-up” with their rates to make up for prior losses.
8. Litigation Trends
   • Higher jury awards in personal injury cases lead to larger payouts by insurers, resulting in higher premiums.
9. Uninsured Drivers
   • The presence of uninsured drivers means insured drivers’ policies cover more costs, leading to higher premiums.
10. Fraudulent Claims
    • Insurance fraud, including staged accidents and exaggerated claims, increases costs for insurers, who then raise premiums to compensate.
11. Increased Operational Costs
    • Rising costs for running insurance companies, including customer acquisition, are passed on to consumers through higher premiums
12. Aging Infrastructure
    • Poor road conditions increase the likelihood of accidents, resulting in more claims and higher premiums.
13. Credit Score Considerations
    • Economic factors affecting credit scores can lead to higher premiums for individuals with lower scores, as insurers often use credit scores to determine premiums.
14. Comprehensive Coverage
    • More drivers opting for comprehensive coverage, which provides broader protection, also leads to higher premiums.
15. More expensive Car rentals.
    • Car rental costs are increasing and being passed to insurance companies.
16. EV Cars. 
    • But while EVs may be good for the environment, they can be hard on your wallet, at least when it comes to electric car insurance costs. EVs are more expensive to replace and repair, which means they can be more expensive to insure
17. Driver Demographics. 
    • Changes in driver demographics, such as an increase in young or elderly drivers, can affect accident rates and insurance costs.

Understanding these factors can help consumers grasp why their auto insurance costs might be rising and what influences these changes in the market.