4 reasons car insurance rates are climbing
If you’re curious as to why you’re suddenly paying more, even for the same car insurance policy, experts say it’s the result of several factors converging over the past few years, creating increased costs for insurance companies and, thus, a steep increase in insurance rates for consumers.
No. 1: High repair costs
Similar to auto insurance rate hikes, the cost of vehicle maintenance and repairs rose more than 7% over the last year. That’s thanks to more expensive cars and car parts, such as electronics and sensors, as well as parts and labor shortages.
Michael J. McCartin, president of Joseph W. McCartin Insurance and a Trusted Choice Independent Agent, said vehicle repair costs are indeed part of the problem.
“Parts and labor costs have increased, many shops are short-handed so it takes longer to fix cars, which means people are in a rental car for a longer period of time.”
No. 2: Climate change
Insurance company losses have hit historic highs as more frequent natural disasters and severe weather driven by climate change generate more claims for larger payouts. These types of catastrophic claims affect both auto and home insurance rates.
State Farm, one of the largest insurers in the U.S., received permission to institute more than 65 rate hikes across 29 different states in early 2023 due to extraordinary losses.
No. 3: Increase in severity of insurance claims
When cars returned to the road post-pandemic, accident rates rose. State Farm attributed its unprecedented $13.2 billion underwriting loss in 2022 to the increased severity of auto insurance claims.
“It really is a convergence of factors, including rising insurer losses due to increasing accident frequency and severity,” said Loretta Worters with the Insurance Information Institute. “There are also more fatalities and injuries on the road, leading to increased attorney involvement in claims.”
No. 4: Tariffs
According to a news release from the American Property Casualty Insurance Association, “Thanks to a highly competitive insurance market, auto insurance is beginning to stabilize. This positive trend, however, could be undermined by tariffs, if they result, as expected, in increased costs to repair or replace cars and other property, which again would lead to higher costs that would need to be reflected in auto insurance premiums, a result no one wants.”