Drivers across the U.S. are facing challenges with the increasing cost of car insurance, which rose 2.6 percent in March from February and 22.2 percent from a year earlier. According to the Labor Department, consumer prices climbed 0.4 percent compared to February, with inflation rising by 3.5 percent. Shannon Martin, a licensed insurance agent and Bankrate analyst, suggested that rising inflation might be contributing to the skyrocketing car insurance premiums. Factors such as medical costs, vehicle parts, labor, and legal fees, which are all impacted by inflation, can drive up the cost of coverage for vehicles, creating a challenging financial situation for many Americans.
The cost of car insurance in the U.S. has surged by more than 50 percent since the beginning of 2021, with a 26 percent increase in the last year alone. U.S. car owners are now paying a national average annual premium of $2,543 for full coverage, equivalent to 3.4 percent of their income. Drivers in Florida are experiencing the highest premiums, with rates nearly hitting $4,000 per year. Factors contributing to the rising cost of car insurance include soaring auto claims since the pandemic began in 2020, more accidents, higher repair costs, escalating vehicle thefts, rising medical bills, and a high volume of storm losses. Supply chain disruptions and inflation have also led to a 46 percent cumulative increase in replacement costs, along with spikes in auto body repair labor rates due to workforce shortages.
In 2023, more than one million vehicles were stolen across the U.S., the highest number since 2008. The increase in car thefts is attributed to the lack of engine immobilizers in Kia and Hyundai models. U.S. auto insurers faced an estimated underwriting loss for the second consecutive year. Insurance companies are seeking to adjust their risk models to accommodate future risks, recoup losses from extreme weather claims, high repair costs, and increased vehicle theft rates during the pandemic. Policyholders are finding it challenging to keep up with rising insurance costs, potentially leading them to reduce coverage and increase deductibles to stay legally insured.
One Texas resident, Melinda Ray, expressed frustration with the significant increase in car insurance costs in the state, highlighting the financial strain on her family with four insured vehicles. With an annual insurance cost of $14,290, Ray emphasized the difficulty of affording essential expenses such as food and gas while covering insurance. The ongoing rise in home and vehicle insurance, rent, groceries, and utilities presents a financial challenge for many Americans. Despite the difficult circumstances, the cost of car insurance is expected to continue growing throughout the year, driven by factors such as extreme weather events, increased repair costs, and the likelihood of additional rate increases from insurance companies. However, rates may start to stabilize in 2025 if catastrophic weather events can be avoided.
