Car shoppers aren’t the only ones experiencing sticker shock nowadays. Auto insurance policyholders are footing higher bills, too. In fact, rates have spiked an alarming 78% over the past decade, and the average driver in 2024 was paying $2,189, marking a nearly 19% jump from the year prior.
What’s behind these costly rates? We can point to plenty of factors, including regulations that vary from state to state, the wrath of Mother Nature, and costlier auto parts. However, the biggest reason is likely high inflation, which has lingered since the onset of COVID-19.
Plenty of hard lessons were learned by the industry following the pandemic, when many carriers didn’t adjust their premiums enough to offset inflationary pressures and supply chain disruptions – resulting in significant loss ratios. To return to a place of profitability again, carriers needed to increase rates substantially.
Auto insurance premiums increase when the cost to repair or replace vehicles goes up. As a result, forecasted inflationary pressures from recently enacted tariffs have the potential to significantly impact these costs.
Think about the new cars being rolled off the line with more expensive parts and advanced technology - it makes sense that a vehicle that is more expensive to produce and purchase is also more expensive to insure. On top of that, some of these vehicles’ individual parts are bouncing back and forth across the U.S. border multiple times, racking up tariff charges.[1] Â
A recent national survey The Zebra conducted found that 27% of consumers aren’t even aware that tariffs can affect their car insurance premiums, while 26% of consumers don’t believe tariffs will have any impact on their rates — not to mention the 8% who are confident tariffs will make their premiums drop. The other 40% of respondents were right in thinking new tariffs could cause their auto insurance rates to go up.Â
The truth is, the new tariffs could increase the cost of insuring drivers and are expected to raise inflation—though it's difficult to predict how much or how long these import/export taxes will affect car insurance rates. But if pricier and harder-to-get car parts from overseas were already a problem, tariffs are only going to make matters worse.
Increasingly severe weather events and natural disasters observed in recent years are other obvious culprits. While these disasters more directly affect homeowners insurance, wildfires, hurricanes, and other natural catastrophes have certainly caused auto insurance premiums to escalate.
Surprisingly, some of the less dramatic weather events have put meaningful pressure on rates. Consider that, for example, car insurance claims linked to hail damage increased by 12% in 2023, with repair costs averaging 22% higher than typical comprehensive claims, according to data from tech firm CCC Intelligent Solutions.[2]
Even non-catastrophic events happening more frequently can have a pronounced impact on what consumers are paying. Expect carriers to factor these events more often into their predictive modeling and rate-taking looking ahead.
Tariffs and stubborn inflation pressure create another problem we’re keeping a close eye on: uninsured motorists. Historically, when premiums head north and economic conditions worsen, we see the rate of policyholders foregoing insurance coverage rise accordingly.
In 2023, 33% of drivers were uninsured or underinsured, a 40% relative increase from 2019, when this stat stood at 23.8%. Interestingly, this aligns with the nearly 40% increase in auto insurance rates since 2019.[3] As of April of this year, The Zebra found that 33% of Americans are considering letting their policy lapse, despite the legal and financial risks.
Carriers have to factor in the strong possibility that there will be more uninsured drivers behind the wheel in the months ahead, which means rates must rise to compensate for these risks and losses.
The good news is that, despite pricier premiums, there are proven ways drivers can reduce their coverage costs.Â
For years, the consumer trend was to see a different insurance company’s TV ad and then attempt to get a lower premium from a single carrier. Today, however, it’s important to shop around and get quotes from several different companies, especially because insurers remain increasingly competitive and each carrier has a different appetite for risk. Drivers should also keep an open mind when it comes to smaller, lesser-known carriers who are financially stable and may be able to offer them better rates. Just because you don’t recognize their name doesn’t mean they aren’t a viable option.
The economy and tariff situation are both contributing factors leading to rising car insurance rates. But they aren't the only things keeping rates high.
While rising cost of living factors across the board may make insurance look like a reasonable expense to cut, remember: driving uninsured or underinsured is, in most states, illegal and also opens you up to significant risk. Explore other places to trim your budget.Â
Murky math: As auto parts cross borders. [Automotive News]
Crash Course 2023: Market Data and Insights on Trends Impacting the P&C Insurance Economy. [CCC Intelligent Solutions]
Facts + Statistics: Uninsured Motorists. [Insurance Information Institute]