Rising Auto Insurance Costs and How to Save Money on Premiums

Last Updated on October 21, 2023 by SPN Editor

The latest Consumer Price Index (CPI) data reveals that auto insurance costs have spiked by around 19.1% in the past year. A study conducted and released by JD Power during the summer months highlighted that 31% of insurance companies have raised their rates over the last year. This surge in auto insurance costs has put a significant financial strain on many drivers.

Aaron Cocking, a spokesperson for the Minnesota Insurance Federation, has drawn attention to the growing challenges faced by insurance companies, notably the surge in car thefts and carjackings. This issue reflects a broader set of concerns within the insurance industry.

The National Insurance Crime Bureau (NICB) has underscored the significant scope of vehicle theft in the United States. With over a million vehicles stolen last year, this has evolved into a multi-billion-dollar industry. Furthermore, the threat is expected to persist, and there are concerns it may worsen in the upcoming year.

Moreover, the Council on Criminal Justice (CCJ) has documented a substantial 33.5% increase in car thefts during the first half of 2023 compared to the preceding year. These mounting instances of theft, carjackings, and even catalytic converter thefts result in substantial payouts by insurers, necessitating adjustments to premium rates to account for this heightened risk.

• Also Read: How to Get Affordable and Cheapest Car Insurance for Young Adults in the US

In overseeing the approval of auto insurance costs increases proposed by insurance companies, Grace Arnold, the Commissioner of the Minnesota Department of Commerce, plays a pivotal role. While crime does play a part, it’s just one facet of the multifaceted challenge. Other significant considerations include driving behavior, the uptick in accidents, especially severe ones, and a surge in speeding incidents.

In addition to these factors, the United States has grappled with a rise in natural disasters, including hurricanes, tornadoes, and hailstorms in recent years. These catastrophic events have burdened insurers with substantial costs, classified as “catastrophe losses.” States vulnerable to climate-related disasters have witnessed some of the most notable increases in auto insurance rates.

Adding to auto insurance costs, the Insurance Information Institute has reported an increase in fatal crashes during the pandemic. Although the numbers have decreased in recent months, they still exceed pre-pandemic levels. These crashes have translated to heightened legal costs, increased medical expenses, and rising repair bills for insurance companies.

Aaron Cocking stressed that the primary driver behind heightened insurance costs is inflation, particularly the escalating cost of vehicle repairs. The price of labor and specialized parts has surged, leading to extended repair times and subsequently higher expenses for insurers. This has also resulted in insurers covering longer periods of rental vehicles, amplifying the overall financial burden.

Driving History Determines Auto Insurance Costs

Your driving history plays a pivotal role in determining your auto insurance costs. For drivers with pristine records and no past incidents, the monthly cost estimate is a budget-friendly $167, totaling an annual cost of $2,008.

However, those who’ve received speeding tickets may see their monthly premium rise to $209, resulting in an annual cost of $2,508. On the other hand, drivers with a DUI on their record face considerably higher costs, with a monthly estimate of $286 and an annual total of $3,431.

If you’ve been in an at-fault accident, your monthly cost estimate will be $243, amounting to an annual cost of $2,919. Safe driving not only keeps you out of harm’s way but also helps you save significantly on your car insurance expenses

Auto Insurance Costs by State for a 35-year-old Driver with Good Credit and Clean Driving Record

The table below provides an overview of car insurance costs for various states, focusing on the annual premiums for minimum liability and full-coverage policies. Notably, Alabama stands out with the lowest minimum-liability premium at $502, making it an affordable option for drivers seeking basic coverage.

Meanwhile, California ranks as the most expensive state, with a full-coverage premium of $2,313, reflecting the impact of location on the cost of comprehensive auto insurance. These figures highlight the diversity in insurance expenses across different states.

Most Expensive Auto Insurance Costs by State

Michigan tops the list of most expensive auto insurance costs with an annual estimate of $3,643, a staggering 81% higher than the national average. Florida and Louisiana closely follow, with annual costs of $3,244 and $3,040, respectively.

On the other end of the spectrum, Vermont stands out as the state with the cheapest car insurance, offering an annual cost estimate of $1,199, a remarkable 40% below the national average. Maine, New Hampshire, Idaho, and Tennessee also provide more budget-friendly options, with costs ranging from 24% to 38% less than the national average. These figures illustrate the significant variation in car insurance expenses depending on your place of residence.

States With the Cheapest Auto Insurance Costs

For budget-conscious drivers seeking affordable car insurance, some states offer a sigh of relief with the most pocket-friendly rates. Vermont stands out as the ultimate bargain, boasting an annual cost estimate of just $1,199, a remarkable 40% below the national average. Maine and New Hampshire follow closely behind, both offering substantial savings with annual cost estimates of $1,238 and $1,362, respectively.

Idaho and Tennessee also make the list, providing cost-conscious drivers a break with the annual auto insurance costs estimates of $1,402 and $1,524, each substantially below the national average. These states not only offer scenic landscapes but also a welcome relief for your wallet when it comes to car insurance expenses.

Car Insurance Cost by Age for Full-Coverage Auto Insurance

Unsurprisingly, younger drivers, such as 16-year-olds, face the highest premiums, with a staggering monthly cost estimate of $632 and an annual cost estimate of $7,581. As drivers mature, premiums tend to decrease, with 35-year-olds experiencing a much more affordable option at a monthly cost of $167 and an annual cost estimate of $2,008.

The table offers a comprehensive overview of how age impacts the cost of full-coverage auto insurance costs. The figures demonstrate a significant contrast in monthly and annual cost estimates based on the driver’s age.

This data underscores the critical role age plays in determining the expenses associated with full-coverage auto insurance.

Auto Insurance Costs by Provider for Full-Coverage Auto Insurance

When it comes to full-coverage auto insurance, the provider you choose can significantly impact your monthly and annual auto insurance costs. USAA emerges as one of the most affordable options, with a monthly cost estimate of $126 and the annual auto insurance costs estimate of $1,512.

Erie Insurance follows closely with a monthly cost of $122 and an annual cost of $1,458. Nationwide and Geico also offer competitive rates, with monthly costs of $119 and $133, translating to annual costs of $1,433 and $1,596, respectively.

State Farm maintains its reputation for reliability, with monthly auto insurance costs estimated at $138 and an annual cost estimate of $1,657. Meanwhile, Progressive offers a slightly higher rate, with a monthly cost of $169, resulting in an annual cost estimate of $2,030. The choice of your car insurance provider can make a substantial difference in your overall expenses, so comparing options is essential.

Several of our highly-rated car insurance providers feature distinctive discount programs:

USAA Discounts:

USAA caters to its military clientele with some exclusive discounts. They offer a generous 60% discount to policyholders who store their vehicles securely, which proves valuable during deployments. Furthermore, USAA provides a 15% discount for vehicles garaged on a military base.

State Farm Discounts

State Farm introduces a unique training app, Steer Clear®, designed for young drivers. This program encompasses comprehensive driving coursework and quizzes. Successfully completing Steer Clear can result in a substantial discount of up to 20%.

Progressive Discounts:

Progressive simplifies the process of earning discounts. You can reduce your premium by completing straightforward tasks like obtaining an online quote, electronically signing documents, choosing electronic statements, and setting up automatic payments through a checking account or credit card.

Geico Discounts:

Geico is renowned for its wide array of discount offerings. Federal employees and members of over 500 corporate and alumni groups are eligible to save on their Geico premiums. You can also enjoy savings of up to 23% on comprehensive coverage policies by simply installing an anti-theft system in your vehicle.

Factors Leading to Rising Auto Insurance Costs

1. Riskier Driving Behavior: During the pandemic, when cars sat parked for weeks, insurance premiums fell. However, when drivers returned to the roads, risky driving behaviors surged. The number of fatal auto accidents increased, and even though accident rates have since declined, they remain higher than before the pandemic, contributing to the rising cost of insurance.
2. Increased Repair and Replacement Costs: Repairing or replacing a damaged vehicle has become costlier due to supply chain disruptions, parts shortages, and rising labor costs for auto mechanics. New and used car prices may be falling, but repair expenses are still on the rise.
3. Natural Disasters: Natural disasters, often linked to climate change, are also impacting insurance premiums, not just in disaster-prone states. Weather-related damage, like hail, is leading to higher costs that are factored into premiums.
4. Balancing Regulation: Insurance regulators have a challenging task of keeping premiums affordable for drivers while ensuring insurance companies remain financially sound. Higher costs incurred by insurers are a key factor justifying rate increases.

Auto Insurance Premiums and Vehicle Types

When it comes to auto insurance costs, the vehicle you drive is a major factor that insurers consider. The cost of replacement parts, repair expenses, accident risks, and safety features of your car all play a pivotal role in determining your auto coverage premiums.

1. Large SUVs: These spacious vehicles with greater passenger capacity might be family-friendly, but they can lead to higher insurance costs. Their substantial size can result in more extensive damages and increased injuries in the event of an accident.

2. Sports Cars: While sports cars offer speed and performance, they also come with higher accident risks. The very features that make them thrilling to drive can increase the likelihood of accidents. Moreover, their specialized components can contribute to elevated replacement part costs.

3. High-End Luxury Cars: Luxury cars are known for their opulence and advanced features. However, these advantages also translate to pricier insurance. Replacement parts for luxury vehicles tend to be more expensive than those for standard daily drivers. Additionally, the high initial purchase price of these cars contributes to higher insurance premiums.

4. Hybrid and Electric Vehicles (EVs): While hybrids and EVs are eco-friendly and economical in terms of fuel efficiency, their parts and labor can be on the expensive side. As a result, you may find yourself paying higher premiums for full-coverage policies on these vehicles.

On the flip side, more affordable, standard-sized cars equipped with modern safety features are often the cheapest to insure. These vehicles typically come with built-in safety advantages such as anti-lock brakes, anti-theft systems, and passive restraint systems. Insurers frequently offer discounts for these safety features, which can help you save on your car insurance costs.

Tips to Save Money on Auto Insurance Costs

1. Shop Around: The first step to savings is to compare quotes from different insurance providers. There are often better deals available.
2. Bundle Insurance: Many companies offer discounts for bundling auto and home insurance policies.
3. Usage-Based Discounts: Consider installing an app on your phone to allow the insurance company to track your driving habits, which may lead to lower premiums.
4. Higher Deductible: Opting for a higher deductible can reduce premiums, but be cautious not to set it too high, risking inadequate coverage in case of accidents or theft.

Steps to Reduce Auto Insurance Costs

Car insurance companies provide a variety of discounts to help policyholders reduce their premium expenses. These are some of the common discounts you can expect from most insurance providers:

1. Multi-policy Discount: You can save on your auto insurance premiums when you bundle your car insurance with other policies like homeowners, renters, or life insurance.
2. Multi-vehicle Discount: Insurers often offer discounts for adding multiple vehicles to the same auto insurance policy.
3. Safe Driver Discount: Going for a specific period without any accidents or claims can lead to cost savings on your car insurance.
4. Good Student Discount: If you have a student on your policy with a “B” average or better, you may qualify for reduced rates.
5. Teen Driver Discount: Many insurance providers offer discounts if you have a teen driver on your policy.
6. Defensive Driving Discount: Completing a defensive driving course is a common way to lower your car insurance premiums.
7. Safety Features Discount: Owning a newer vehicle with advanced safety features can make you eligible for discounts.
8. Military Discount: Some auto insurers extend discounted rates to active-duty military members and veterans.
9. Usage-Based Discount: Several major insurers offer programs that monitor your driving behavior through a mobile app or plug-in device, rewarding safe driving habits with discounts.

Frequently Asked Questions (FAQs)

1. Why have my auto insurance costs gone up recently?

There are several factors contributing to the increase in auto insurance costs. These include an increase in risky driving behavior, rising repair and replacement costs, the impact of natural disasters, and overall inflation in the economy.

2. How has risky driving behavior affected insurance rates?

Risky driving behaviors, which became more common during and after the COVID-19 pandemic, have resulted in a higher number of accidents. This increase in accidents has led to a rise in auto insurance costs.

3. Why are repair and replacement costs impacting insurance rates?

Repair and replacement costs have increased due to supply chain disruptions, parts shortages, and higher labor expenses. This has made it more expensive for insurance companies to cover the costs of vehicle repairs and replacements.

4. How do natural disasters contribute to higher insurance premiums?

Natural disasters, such as hailstorms and extreme weather events, result in more insurance claims. As insurers pay out for these claims, it puts upward pressure on premium rates to cover the increased costs.

5. What is the role of insurance regulators in this situation?

Insurance regulators work to strike a balance between keeping insurance premiums affordable for consumers and ensuring that insurance companies remain financially stable. They evaluate rate increases to determine if they are justified based on the rising costs faced by insurers.

6. How can I mitigate the impact of rising auto insurance costs?

To mitigate the impact, consider shopping around for insurance providers, bundling policies for discounts, paying upfront to receive discounts, taking defensive driving courses, reducing your mileage if possible, and carefully evaluating your coverage needs.

7. Are there any discounts or programs available to reduce auto insurance costs?

Many insurance providers offer discounts based on various factors, such as good driving records, good student status, bundling multiple policies, and taking advantage of usage-based programs. It’s a good idea to inquire about these discounts with your insurance company.

8. Can auto insurance costs vary by location or state?

Yes, auto insurance costs can vary significantly by location and state. Some states may have higher insurance rates due to factors like a higher incidence of accidents or natural disasters.

9. What are some considerations for lowering my auto insurance premiums?

Consider adjusting your coverage, raising your deductible, and exploring options like usage-based insurance to lower your premiums. It’s important to review your policy periodically to make sure you have the right coverage for your needs.

10. Is it advisable to switch to a different insurance provider to save money?

Switching to a different insurance provider can be a way to potentially save money on your premiums. However, it’s important to carefully compare policies and coverage to ensure that you’re getting the best value for your specific needs.