Car Insurance Prices Surge as Americans Struggle With Debt

Car insurance rates are surging as Americans struggle to pay for basic necessities and ongoing debt.

The newest Consumer Price Index shows car insurance spiked 20 percent year over year. The surge in pricing occurred after years of gradual price inflation, with earlier reports finding the rates grew by 36 percent since 2020.

That’s at the same time debt is soaring for many Americans. While Americans hold around 1.75 trillion in student debt loans alone, they also have $1.05 trillion in credit card balances not paid off.

Alongside inflation, Americans are facing sharp auto insurance hikes and may have to make difficult decisions to afford to be on the road.

Because car prices in general have skyrocketed, more Americans are keeping their current cars for longer. This means costly repairs can become more likely, and the car insurers have adjusted their rates accordingly.

“Insurance companies took decisive action in 2023 to align their rates with insurance loss trends,” Betsy Stella, the VP of carrier management and operations at Insurify, told Newsweek. “Consumers will continue to feel the effects of increased premiums as their policies renew during the first part of 2024.”

In the last year, car repair prices also climbed 7 percent, outpacing inflation by more than double.

Bankrate found the average cost of car insurance today in America was $2,500 yearly. This is in stark contrast to just three years ago when the average hovered at $1,700.

Back in 2020, when the pandemic saw Americans driving at record-low rates, car insurance companies were able to lower prices. But soon after the roads reopened and people returned to their normal routines, the prices were jacked up once again, and now many struggle to keep up with payments alongside inflation.

“With the pandemic in the rear-view mirror, Americans are traveling more, including by car,” Stephen Henn, an economics professor at Sacred Heart University, told Newsweek. “More miles mean more accidents statistically which is yet another factor impacting rates.”

A supply chain slowdown and ongoing labor shortages have also pushed the insurance industry to implement price hikes on customers, insuranceQuotes.com analyst Michael Giusti said.

“Today’s auto insurance spikes really come down to reverberations from the pandemic,” Giusti told Newsweek. “When supply chains broke down, things like chip shortages led to fewer vehicles being made. A smaller inventory drove up car prices, and with higher prices, replacements cost insurers more when they had to total a vehicle.”

For several quarters insurers felt the financial impact, and now they’re passing it on to the consumer, Giusti said.

“None of that even mentions the higher medical costs they have to pay after accidents,” Giusti said. “Today’s higher premiums are just a reflection of those higher costs.”

But one piece of the puzzle that many auto consumers might not be aware of is the impact of electric vehicles on the insurance industry.

The sudden rise of electric vehicle purchases also carried some of the blame, since EVs are more expensive to purchase and repair, Henn said.

The implications of the jolting rates are far-reaching, but there are still ways to combat the price hikes.

“This will likely cause more drivers to shop around and compare rates for better premiums, and many may modify their coverages,” Stella said, adding that there are already more uninsured drivers on the road due to the price adjustments.

“When an uninsured driver gets into an accident with an insured driver, the insured driver’s policy may cover the claim using un- or under-uninsured motorist coverage. The more often that coverage is used, generally, the more carriers will have to charge for insured drivers to have that coverage.”

Young Americans, those between the ages of 18 and 24, are disproportionately affected by rising car insurance rates because as younger drivers, insurers already charge them more than older, more experienced drivers.

“Car insurance has always been more expensive for young and inexperienced drivers, but the stark reality is that this demographic is now grappling with increases far exceeding those faced by older age groups,” Liz Hunter, the commercial director at Money Expert, told Newsweek.

How to Lower Your Rate

As Americans invariably get fed up with the insurance rates, some insurance companies are primed to offer discounts, like offering a lower rate for those with anti-theft systems. But still, Stella recommends car owners shop around to get the best rate for their car insurance.

And if you don’t use your car often, you might want to consider usage-based insurance, she said. You can often reduce your monthly premium by declaring yourself a work-from-home employee, as you generally drive less than other customers.

The worst option, both for the individual and drivers as a whole, is to choose to drive without insurance, experts say.

If this happens, insured drivers will see higher rates and uninsured drivers could be financially devastated if they end up in an accident, Alex Beene, financial literacy instructor for the state of Tennessee, said.

“My fear is if these automobile insurance prices continue to go up, you’re going to have more drivers drop them,” Beene told Newsweek. “And whereas home insurance for most is something sparingly used, automobile accidents are common, and not having insurance in case of an emergency could put a massive financial strain on many drivers.”