New Car Market: 7 Reasons Car Insurance Is Soaring

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The world of automobiles is experiencing a seismic shift, and it’s not just about the cars themselves. The cost of insuring these vehicles is skyrocketing, leaving drivers across the nation grappling with steep premiums. In fact, according to data from the U.S. Bureau of Labor Statistics, car insurance rates have witnessed a substantial increase of over 17% in the past year.

From technological advancements to changing demographics and economic factors, GOBankingRates talked to experts to see what has led to the rising cost of car insurance. Buckle up for your journey and discover potential strategies for navigating this new landscape.

Inflation Impact

The No. 1 reason almost all of the experts gave was inflation. “Inflation affects not just the cost of consumer goods but also the operational expenses for insurance companies,” said Joe Giranda, director of sales and marketing for CFR Classic. “When inflation is high, insurers often adjust premiums upward to maintain their level of service and profitability.”

Escalating Repair Costs

Giranda explained that the technological advancements in contemporary vehicles are driving up repair expenses. Features like advanced safety systems and complex electric components significantly inflate repair costs, compelling insurance providers to recalibrate premiums to accommodate these heightened expenses.

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Surge in Accidents and Claims

Shifts in driving habits, notably the rise in distracted driving attributed to smartphone usage, have resulted in a higher frequency of accidents. This increased accident rate, in turn, leads to a surge in insurance claims that insurers must cover, subsequently driving up insurance premiums. Talha Atta, an automotive expert and editor of Auto Globes, emphasized this ripple effect in the insurance industry.

“Don’t get me started on distracted driving due to cell phones!” said car coach Lauren Fix. “I can’t tell you how many times I’ve nearly been sideswiped by someone texting behind the wheel. It’s no wonder rates go up with so many dangerous drivers out there not paying attention.”

Regional Factors: Natural Disasters and Severe Weather

Fix pointed out that there has been a significant increase in catastrophic claims in both auto and homeowners insurance. This surge is attributed to various extreme weather events, such as snowstorms, hurricanes and tornadoes.

Allstate, for example, experienced a staggering rise in catastrophe-related expenses, exceeding a billion dollars in the first quarter compared to the previous year, primarily due to unprecedented flooding and powerful storms across U.S. cities. An executive from Allstate indicated that rates would continue to rise “until we get back to historical profit margins,” with customers bearing the brunt of these adjustments.

Personal Driving Record

Atta emphasized that your driving record significantly influences your insurance rates. Having a history of multiple accidents, DUIs (Driving Under the Influence), or other traffic infractions can indicate to insurers that you pose a higher risk as a driver, inevitably leading to higher premiums.

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Fix further explained that insurance providers assess driver profiles and make rate adjustments accordingly. For instance, teenage and elderly drivers are typically deemed higher-risk categories. Consequently, as more individuals from these demographics take to the roads, insurance companies respond by increasing premiums.

Pricier Cars

According to a 2023 report on used vehicles by Edmunds, the average price of a used car has surged by 44% over the past five years, and new car prices have also seen an increase.

“Have you noticed how new car costs keep increasing?” asked Atta. “Well, that’s a part of the problem. When cars are more expensive, fixing or replacing them after an accident also costs more. So, insurance companies are passing that bill to us.”

Cars are getting more expensive — and that means so is insurance. “The average price of a new car is just shy of $50,000 and $66,000 for electric vehicles, which have higher insurance rates,” said Fix. “The average new car payment hit an astonishing $777 earlier this year, and used car prices continue their upward climb as well.”

More Uninsured Drivers

The rise in uninsured drivers hitting the road is causing an increase in insurance costs for everyone. “A not-so-cool trend is happening, but more people are hitting the road without insurance,” said Atta. “Insurance companies still have to pay out when they mess up, and that cost eventually lands on our premiums.”

So What Can We Do About It?

Jason Farrell, a certified master technician at Mechanic’s Diary, said there are a few proactive things consumers can do. “Firstly, regular checkups can spot issues before they become big, expensive problems,” he said. “It’s all about catching things early.”

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Some insurers also have driving behavior programs. “Some insurance companies will give you a little device that keeps tabs on how you drive,” said Farrell. “Drive well, and you could land some sweet discounts. It’s a win-win!”

And don’t forget to shop around. “Different insurers have their secret recipes for calculating your premium,” shared Farrell. “While one might focus on your age, another could be about the car you drive or your past driving history.” Searching for the ultimate deal can occasionally unveil a hidden gem. And why not consider bundling? Consolidate your car, home and life insurance policies. While it might seem like you’re consolidating all your assets in one place, the savings can be quite substantial.

However, you need to be careful not to pass on insurance you need in hopes of saving some money upfront. “Just ensure you’re not skimping on necessary coverage, or you could find yourself out of luck when you need it the most,” shared Todd Bialaszewski, master mechanic at Junk Car Mechanics. “In my years of repairing cars, I’ve come to understand that prevention is often cheaper than a cure, which also applies to insurance costs. The less risk you present, the less you’ll be hit by those annoying premium hikes.”

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