Why are car insurance rates increasing so much?
Car insurance rates have been soaring in 2023 surpassing expectations with the national average cost now $172 per month. Here’s what’s behind the spike.
Car owners across the United States have been seeing their monthly premiums to insure their vehicles soaring yet again this year. Since the pandemic, a series of factors have been driving up the cost of car insurance.
The latest Consumer Price Index report showed that over the 12 months to August 2023 motor vehicle insurance has jumped over 19 percent, the largest increase in 47 years. The soaring prices are resulting in many drivers seeking to cut coverage to reduce what they pay.
The average full-coverage car insurance policy had risen to $2,064 per year at the end of the first half of 2023. That breaks down to $172 per month, according to Insurify data, far surpassing predictions made last year.
However, the rise in car insurance hasn’t been uniform from state to state. As well, residents in some states are finding it more difficult to shop around for policies as some insurers pull out of markets.
Why are car insurance rates increasing so much?
The price of car insurance varies depending on the policyholder’s driving history, the type of vehicle and coverage. In many states insurers will even look at your credit score. But the conditions in your state can also play a role such as California and Florida. Insurers have pointed to the increased financial costs presented by “growing catastrophe exposure” resulting from climate change as well as citing elevated reinsurance premiums.
Michigan, which has topped Insurify’s list of the most expensive states for car insurance for three consecutive years, saw rates rise 31 percent since 2022 as of their mid-year report. The state’s no-fault car coverage, which allows your insurer to cover medical expenses, including uninsured passengers, when you are involved in an accident that wasn’t your fault, is cited as part of the reason premiums are so high in the state.
The pandemic also drove up the cost of cars and the parts that go into them. The average cost of a new vehicle in the US was $48,334 in July according to Kelly Blue Book. This also means that it is more expensive to repair or replace cars that have been damaged in an accident or natural disaster.
During the pandemic as well, there was an increase in speeding and reckless driving which helped 2020 and 2021 become the deadliest years on the road in over a decade. This has forced insurance companies to offset the additional claims they had to pay out with higher rates.
All these factors mean that insurance companies are paying out more in claims than they are taking in from premiums. According to S&P Global the combined loss ratio reported by insurance companies in 2022 was nearly 112 percent. That was up 11 percent from the year before and the 90.5 percent reported in 2020.