There’s no getting around the fact that insurance costs ballooned over the past year. Bureau of Labor Statistics data shows that car insurance premiums rose 20% in 2023, and the average annual amount a driver pays for car insurance is now a staggering $2,543.
Here are a few reasons why car insurance prices have increased lately and what you can do to help bring them under control.
Insurance companies are recouping losses
If you’re a homeowner, you may have noticed that it’s not just your car insurance rates that increased; homeowners insurance is also more expensive. Part of the reason for insurance increases for both home and auto is insurance companies’ mounting losses.
Wildfires and floods in some states have cost insurance providers billions of dollars over the past few years. According to the Insurance Information Institute, insurance providers paid out $1.10 for every $1 they received in premiums in 2023.
Insurance companies have raised home and auto insurance premiums to make up for the losses.
Cars are more expensive to repair
Not only are cars more expensive to replace, but they’re also costlier to repair. Federal Reserve data shows that at the end of 2023, vehicle repair costs had increased 17% from the previous year.
Part of the problem began during the COVID-19 pandemic, when there was a shortage of automotive parts. But there’s also a shortage of trained technicians to fix vehicles, which is driving costs higher. The National Association of Automotive Dealers estimates an annual shortfall of 37,000 automotive technicians.
Vehicle prices are up
The average selling price of a new vehicle was $47,401 in February, a stunning 25% increase from four years ago. While that’s bad news for you when you buy a car, it’s also bad news for insurance companies.
Insurance companies generally charge more for coverage as a car’s value increases. That’s because it costs the insurance providers more money to replace the vehicle if it’s involved in a wreck and declared a complete loss. With car prices up significantly over the past few years, rates have risen along with them.
Three ways to lower your auto insurance
While all of the above are driving insurance costs higher, the good news is that you can do something about it. Here are three ways to lower your insurance premiums.
1. Increase your deductible
Your insurance deductible is the amount you must pay out of pocket in case of an accident or other damage. Depending on the type of coverage you have and how high your deductible is already, you may be able to increase it.
Doing this lowers your car insurance premiums because you’re agreeing to cover more of the costs of repairing your vehicle.
Progressive Insurance gives the theoretical example of a $100 car insurance deductible raised to $1,000. A big deductible increase like this could potentially save you up to 28% on your current premiums. Just keep in mind that if you raise your deductible, you should put extra cash in a savings account to cover the cost if you need to make an insurance claim.
2. Pay your premiums annually
One quick way to lower your premiums is to pay the entire year’s premiums all at once. Most insurance companies offer a discount for paying annually or splitting the payment into two payments every six months.
Paying your premiums in one lump sum once per year could save you 12%. For the average driver, this could equal a savings of up to $305.
3. Comparison shop
I recently spent a few minutes shopping around for insurance rates and found a rate from a competitor that is about $32 less per month. That’s a savings of $384 annually!
Most people don’t take the time to shop around for a lower car insurance rate, and they miss out on potential savings. According to car insurance app Jerry, 60% of people who comparison shop for auto insurance find cheaper premiums.
Nearly everything is more expensive than it was just a few years ago. If your car insurance rate is up, it’s worth considering whether your deductible can be adjusted or if you can pay your premiums annually for a discount. Even if you can make those adjustments, it’s likely still worth your time to take some time to get a quote from a few other providers.
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