If you’ve been feeling the pinch when it comes to your car insurance bill, you’re not alone. Drivers across the United States are facing a steep climb in auto insurance premiums, with the average annual cost now hitting $2,543, or $212 per month. That’s a significant 26% increase from last year, and it’s taking a bite out of household incomes, amounting to 3.41% of the national median income of $74,580.
Greg McBride, chief financial analyst for Bankrate, doesn’t mince words when he says, “Auto insurance rates have been rising at a breakneck pace.” While we might hope for a slowdown, it’s clear that premiums aren’t likely to drop anytime soon. Bankrate’s report sheds light on this trend by examining car insurance costs as a percentage of household income across the U.S.
But what’s fueling this surge in car insurance prices? It’s not just inflation; factors like weather patterns and population density are also at play. States frequently hit by natural disasters, such as Louisiana and Florida, are seeing the highest percentages of income going towards car insurance, with averages of 6.53% and 5.69%, respectively.
Meanwhile, Massachusetts drivers enjoy the smallest impact on their incomes thanks to state laws that prohibit using age as a rating factor for premiums. On the other end of the spectrum, Missouri experienced the most significant jump in premium prices this year, with a 40% increase from the previous year.
Interestingly, Wyoming is the outlier, with a slight decrease in premiums, albeit by just $1. However, the overall trend is clear: auto insurance costs are likely to continue their upward trajectory due to factors like extreme weather, risky driving habits, and high repair costs.
The Consumer Price Index (CPI) confirms this trend, noting a more than 20% increase in car insurance prices over the past year. This hike is on top of an already steep 38% rise since January 2020. The big insurance companies are tight-lipped, but industry insiders point to a few under-the-radar trends.
For one, driving has become more dangerous during the pandemic, with increased instances of speeding and distracted driving. Ryan McMahon from Cambridge Mobile Telematics highlights a “incredible increase in distracted driving” since COVID-19 began. Fatal accidents and severe auto insurance claims have spiked as a result.
Enforcement of traffic safety has also waned, impacting insurers’ ability to assess and underwrite driver risk accurately. This, coupled with the technological advancements in cars that make repairs more costly, is pushing rates higher.
The impact on consumers is undeniable. New cars are becoming less affordable, and rising insurance costs are hitting low-income individuals the hardest. Yet, there’s a glimmer of hope. Experts believe that the rate of increase may not be as steep in the coming year, as insurance companies catch up with costs and inflation stabilizes.
Understanding the reasons behind these soaring rates can empower drivers to seek out better deals and manage their car insurance costs more effectively. While personal factors like location, age, and driving record play a role, being aware of the broader economic and social factors at play is crucial in navigating these challenging times for car owners.
