If you are one of the drivers who saw an increase in their auto insurance this year, you’re not alone. Insurify reports about half of American drivers had at least one price hike in 2023, with an increase of 17.8% in auto insurance prices from July 2022 to July 2023, per the consumer price index. As the cost of insurance continues to rise, consumers are struggling to find a reason, especially if they haven’t had any changes in their driving record. While claim or violation history can cause higher rates, there are some other reasons why costs have gone up in the past few years. Keep reading for a detailed explanation of why car insurance rates have gone up in 2023.
Why Did My Car Insurance Go Up Without An Accident?
To fully grasp why rates have been increasing, you have to understand how insurance is priced in the first place. Auto insurance companies not only look at your specific risk attributes - such as your vehicle, driving history, and location - but they also look at their overall performance as a company.
For example, if an insurance company has paid out more in claims than they have collected in premiums for a given year, they may need to increase rates to recoup those expenses. As you can imagine, there are many reasons why an insurer would have higher claim payouts and would need to update their rates. Some of these examples are indicated below.
Two types of inflation affect the amount of money insurers pay out in claims; economic inflation and social inflation.
Our wallets are all noticeably thinner due to inflation. From the cost of food to gas and utilities, costs have increased across all industries, and auto insurance rates are no exception. Insurers have had to raise prices due to costs related to claim settlements, such as medical care, car parts, and equipment, as well as car rentals. As these costs increase, insurers are forced to pass these additional expenses onto policyholders in the form of higher premiums.
Additionally, insurance premiums were previously lagging behind inflation rates, meaning that premium increases in 2020 and 2021 were insufficient to cover the rising cost of inflation. Insurance companies are now playing catch up and trying to adjust rates accordingly.
Many states also require insurers to obtain approval on rate increases before the increases can be implemented. If the state regulators find the proposed increases too excessive, insurance companies may spread the total increase over a few years, which can add to consumer frustration.
According to an Accenture study, only 29% of all consumers trust insurance companies, and Deloitte cites 11% that find insurance agents or brokers to be trustworthy. With this overarching distrust of insurance companies, “social inflation” is high.
Social inflation is a term used to describe the rising costs of insurance due to societal perceptions or trends that lead to increased litigation and, consequently, higher claim settlements. Several key factors contribute to social inflation.
- Litigious Culture: A society becoming more litigious, where individuals are increasingly inclined to file lawsuits, can contribute to social inflation. This trend may be influenced by factors such as media coverage, legal advertising, and cultural attitudes toward seeking compensation through legal channels.
- Increased Jury Awards: Social inflation is often associated with a rise in the size of jury awards. Juries may be more sympathetic to plaintiffs, leading to larger compensatory and punitive damages being awarded.
- Legal and Judicial Environment: Changes in laws and regulations, especially those favoring plaintiffs, can contribute to social inflation. These changes may impact the frequency and severity of claims, influencing insurance costs.
- Medical Costs: The increasing cost of healthcare can also contribute to social inflation, particularly in cases involving personal injury claims. Higher medical expenses can result in larger settlements or judgments.
- Consumer Awareness: Greater awareness among consumers regarding their legal rights and the potential for compensation may lead to an increase in the number of claims filed, contributing to social inflation.
During the 2020 COVID pandemic, the auto insurance industry saw a sharp decline in the amount of claims filed as people were driving less. However, since that time, claim payouts increased by 35% for bodily injury and property damage and 40% for collision. While part of this can be blamed on inflation, the remainder is due to more risky behaviors behind the wheel. With fewer cars on the road, drivers were speeding more frequently and distracted by smartphones more often. According to one study, 16.8% of drivers involved in car crashes in 2020 were using their cell phones five seconds before impact. The severity of these accidents, especially where distracted driving and speeding were factors, resulted in higher claim payouts for insurers.
With the frequency of claims decreasing at the beginning of 2020, insurance companies had a surplus of money as they weren’t paying out on claims as often. In addition, many of their customers were facing financial uncertainty as a result of the pandemic. As a way of giving back, insurers issued refunds or premium credits to their policyholders during this time. The amount of these credits totaled about $14 billion.
Some insurers were financially unprepared to handle the claims that were filed in 2021 and 2022, especially as the amount of the claim payouts increased. This required a rate revision to ensure money was available for future claims.
The COVID pandemic also resulted in many employees across all industries leaving their profession in 2021 and onwards, a trend that has since been termed “The Great Resignation.”. The Bureau of Labor Statistics cites 72.3 million total employee/employer separations in 2022, an increase from 69.0 million in 2021. These numbers also include baby boomers who have retired from the workforce.
The labor shortage can impact car insurance rates in the following ways:
- Repair Costs: A shortage of skilled labor in the car repair industry can lead to increased costs for repairing vehicles after accidents. If there's a scarcity of qualified mechanics and technicians, repair shops may need to pay higher wages to attract and retain talent. These increased labor costs can contribute to higher overall repair costs, influencing insurance rates.
- Claims Processing Time: Labor shortages in insurance companies can result in longer claims processing times. If there are not enough claims adjusters or staff to handle the workload efficiently, it may lead to delays in processing claims. Prolonged processing times can impact the overall cost of claims for insurers, potentially affecting insurance premiums.
- Fraud Risks: Labor shortages may contribute to challenges in fraud detection and prevention. Insurers may face difficulties in dedicating enough resources to investigate and combat insurance fraud, potentially leading to higher losses from fraudulent claims. In response, insurers may adjust premiums to account for these increased fraud risks.
- Driving Patterns and Risk: Labor shortages can influence commuting patterns and overall driving behavior. For example, if there is a shortage of workers in urban areas, more people may need to commute longer distances, potentially increasing the frequency and severity of accidents. Changes in driving patterns and risk levels can impact insurance rates.
A study by the National Centers for Environmental Information (NCEI) states that the U.S. saw an average of $152 billion per year in property losses since 2020 due to natural disasters. Flooding, wind storms, hail, and wildfires are all naturally occurring events that can cause severe damage to vehicles.
These events can have a significant impact on the price of car insurance not only due to the increased number of claims but also due to the higher repair costs. If an event is so widespread that it affects a large geographic location, repair costs, and replacement parts tend to go up. Insurers then need to adjust rates to offset these costs.
What Can I Do to Lower My Premium?
So now that you may have a better understanding of why your rates have gone up, what can you do about it? Fortunately, there are a few ways you can potentially lower your car insurance premium.
Improve Your Credit Score
Not all states allow credit scores to be used in rating insurance policies. But for those that do, improving your credit score is a great way to lower your premium. Insurance companies will use a credit-based insurance score to determine how likely you are to file claims. By improving your credit, you can save anywhere from 17%-24% on your car insurance.
Cara Carlone, a 20-year insurance industry veteran, recommends reaching out to your insurer if your credit score has gone up recently. “Insurance companies won’t necessarily re-run your credit-based insurance score every renewal. So if you’ve improved your credit over the past year, call your insurer and ask them to re-run your score.”
Some tips on how to improve your credit score are below:
- Pay bills on time
- Reduce credit card balances
- Avoid opening too many new accounts
- Keep older accounts open to lengthen your credit history
- Have diverse credit types (loans, credit cards, etc…)
- Negotiate debt with creditors to bring the balance down to a more manageable amount
Maintain a Clean Driving Record
While your driving record is only one piece of how your policy is rated, it plays a large part. Good drivers can save significantly on their policy, between 10%-30% on their car insurance annually for being claim and violation-free.
Some insurance companies will build this into your rate and provide lower premiums, while others offer car insurance discounts. Good drivers may qualify for the following discounts:
- Accident-Free Discount- This discount is typically offered to drivers who have not had any accidents within the past 3-5 years.
- Violation-Free Discount- Drivers who have remained without traffic violations for 3-5 years may qualify for this discount.
- Safe Driver Discount- This discount is often a combination of accident and violation-free discounts and is offered to drivers who have not had accidents or traffic violations within 3-5 years.
Avoid Lapses in Coverage
One of the lesser-known rating factors in auto insurance is whether you have had a prior lapse in car insurance coverage. Insurance companies view drivers with prior lapses as riskier to insure and charge them more as a result. To keep your premiums low, you should remain continuously insured.
There may be situations where you are without a car for an extended period. This typically occurs when your car has been totaled or sold, and you don’t buy a new one right away. In these scenarios, purchasing a named non-owner policy is a good idea.
A named non-owner policy covers you as a driver if you are without insurance and are driving a car. Not only does it provide you with liability coverage if you are borrowing or renting a car, but it also prevents a lapse in coverage, which can help to keep your rate from increasing on future car policies. If this is not an option for you, look into being added as a driver on a relative’s policy as well.
It may sound counter-intuitive, since companies will generally offer loyalty discounts for long-time customers, but you may be able to save more money by switching insurance carriers rather than staying with your current provider. This is because each company weighs rating factors differently. For example, one company may rate drivers with poor credit higher than another company, which may have more of a risk tolerance for lower credit scores.
You don’t know which company has the lowest rates for you until you shop different insurance providers. Industry experts suggest quoting different companies at least once a year to ensure you are getting the best price.
Enroll in Telematics Program
Many insurance companies now offer telematics insurance to their customers where they view your driving behaviors to determine how much you pay. These programs typically use a plug-in device in your car or a mobile app to look at how much and how well you drive. Examples of data the insurers are examining are below:
- Phone Usage
Some companies will offer discounts in real-time while others will lower rates at renewal, but good drivers can expect to save between 25%-40%. There is a risk that your rate will increase if you are not safe behind the wheel, so be sure to inquire how your company’s specific program works before enrolling.
With telematics programs, you don’t know how much money, if any, you can save with a particular insurer until you sign up and start driving. However, if you want to save money right off the bat, SteadyDrive is the way to go.
SteadyDrive is a free mobile app that aims to revolutionize auto insurance pricing by utilizing telematics technology. It tracks your driving habits through a smartphone app, assessing factors that many telematics programs use to base your rates, like speed, acceleration, braking, and phone use.
You take an anonymous test drive to determine your eligibility for telematics-informed discounts, and insurers provide a quote using this data for good drivers. The data gathered won’t impact your current premium or future insurance quotes, but has the potential to save good drivers hundreds per year on their car insurance. If you are 18 or older with a US driver’s license, simply download the free app to get started on potential savings.
RELATED: How SteadyDrive Can Save You Money
Ready to lower your rates?