The only thing going faster than the driver in the lane next to you is the price increases for insuring your car.
Auto insurance rates climbed 1.4% in January and are now up a staggering 20.6% over the past year, according to federal inflation data.
Auto insurance inflation is so high that it is now running at more than twice the rate of any other category of inflation tracked by the government, including food, energy, clothes, new and used cars, medical services and rent. And auto insurance inflation remains stubbornly high even as the overall inflation rate continues to gradually fall toward the Federal Reserve’s 2% target.
“There’s a myriad of reasons for it,” said Brian O’Connell, insurance analyst for InsuranceQuotes.com. “It’s bad across the board.’’
Used car prices have started to come down, but the costs of car parts, labor and medical services continue to rise, Root CEO Alex Timm told analysts on the auto insurer’s most recent conference call to discuss the company’s financial performance.
“We still see healthy inflation in many other areas. We’re constantly monitoring that,” Timm said.
How bad is it?
The average cost of full coverage car insurance rose to $2,543 nationwide in 2024, a 26% increase over the past year, according to a new Bankrate study.
O’Connell pegs rate increases of about a third since 2019, and for some drivers it’s been 50%, O’Connell said.
Owners of electric vehicles pay about 25% more.
Based on median household income of $74,580, the typical household spends 3.4% of its income on auto insurance, Bankrate said.
In Ohio, one of the lower cost states for auto insurance, the bill is $1,514, or 2.3% of the median household income.
Why are rates going up?
Auto insurance has gone up so much because everything that it covers has increased so much, O’Connell said.
That includes more expensive new and used cars, higher costs for parts, parts shortages, higher labor costs, more frequent accidents, car rental costs and an increase in the number of stolen cars.
Used car prices, for example, are about 20% higher than they were in 2019, he said.
“We aren’t going go grab these costs,” O’Connell said of insurers. “The customer is.’’
Speeding and distracted driving have led to more accidents and more costly accidents, said Kirt Walker, Nationwide’s CEO.
“Americans developed bad habits during COVID when there were no cars on the road and they continue,” he said.
Consumer groups have added another factor behind higher rates: CEO pay and corporate greed given that rate increases have far exceeded the inflation rate.
When will rates finally come down?
Some costs tied to auto insurance are starting to ebb.
Used car prices are down 3.7% over the past year and the inflation rate for motor vehicle maintenance and repair has slowed to a still high 6.5% over the past year.
“It’s going to take some time,” O’Connell said, comparing the drop in prices to the slow decline of a feather falling.
It’s also going to take a change in behavior, Nationwide’s Walker said.
Nationwide was among the insurers that have worked to address the issue of distracted driving, including a state law enacted a year ago that makes it easier for police officers to pull over motorists over for such things as texting, checking social or streaming videos.
“The tools are in peoples’ hands,” Nationwide’s Walker said.
What can drivers to reduce costs?
Drivers hit with high insurance costs should shop around.
Otherwise, there are the usual tips for how to cut costs: bundle policies together, compare insurance costs on different cars before buying the car, ask for higher deductibles and ask insurers for other discounts that may be available.
Many insurers now offer coverage based on how many miles drivers put on their car or programs that reward motorists for safe driving and can reduce costs.
Vehicle type and the amount of coverage factor into auto insurance prices.
Drivers with a history of accidents and tickets will pay more as will those who have poor credit scores.
“Unless you have a great record you’re going to take it on the chin,” O’Connell said.
@BizMarkWilliams
