Car Insurance Premiums Are Going Full Throttle

A car that's fallen into a lake, likely a total loss

Jeppe Wikstrom / Getty Images

The cost of living is rising, and the cost of driving is going up much faster than that, especially when it comes to car insurance premiums.

Key Takeaways

  • Car insurance premiums have risen a staggering 19.1% over the last year, the largest increase since 1976 and far higher than the 3.7% overall inflation rate.
  • Insurers say they're passing rising costs to repair and replace vehicles on to consumers.
  • New car prices have stopped skyrocketing, so future rate increases may be more subdued.

Travel-related costs helped drive overall inflation up in August, especially prices for gas (up 10.6% from July); airline tickets (up 4.9%) and new cars (up 0.3%). Those all paled in comparison to vehicle insurance, which jumped 2.4% in August, making for a staggering 19.1% increase over the last 12 months, the fastest increase since 1976. The chart below shows how much faster car insurance has gone up compared withthe overall inflation rate.

Car insurance rates plunged in April 2020 when pandemic restrictions kept people off the road. Since then, they’ve come back with a vengeance.?

Insurers say they’re facing rising costs to repair and replace vehicles as prices for both new and used vehicles have surged, and are passing those costs on to rate-payers. State Farm, for example, took $13.4 billion in underwriting losses on its auto insurance business in 2022.

There may be relief on the horizon. Prices for new cars are no longer soaring like they were last year. New car prices in August were 2.9% higher over 12 months, down from a 13.2% yearly increase in June 2022, and that could eventually take some upward pressure off of insurance rates.

“Vehicle insurance inflation lags new car prices by about a year, and the sustained downshift in new car inflation means that insurance prices are set to slow markedly, but it hasn’t happened yet,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a commentary.

In the meantime, individual consumers have a few ways to reduce those premiums, experts say, including shopping around for better rates, increasing deductibles, and taking a defensive driving course.

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  1. Bureau of Labor Statistics. "Table 1. Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, by expenditure category."

  2. State Farm. "State Farm? announces 2022 financial results."

  3. Bureau of Labor Statistics via Federal Reserve Economic Data. "Consumer Price Index for All Urban Consumers: New Vehicles in U.S. City Average."

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