Drivers are spending a larger portion of their incomes on auto insurance, and the trend does not appear to be slowing down.
Nationally, drivers will spend nearly 3% of their yearly income on car insurance this year. This equates to an average annual premium of $2,014 for full coverage insurance, according to Bankrate.
Average car insurance premiums rose 14% between 2022 and 2023, which averaged $1,771 last year, says Bankrate.
Premiums are expected to rise even further as insurers grapple with increasing costs of parts, labor, and claims, according to USA Today.
These rising costs are causing auto insurers to lose money on policies, Martin Ellingsworth, P&C Insurance executive managing director at JD Power, told USA Today.
Insurance companies generally do not stomach losses for long, and the increased costs incurred will eventually get passed on to consumers.
Insurers must submit new rates to the department of insurance in each state in which they operate and wait for approval, according to USA Today. This is the reason why rates have not increased even further.
From 2020 to 2021, auto insurers’ losses increased 25% while insurance premiums only increased 4.5%, CBS News said. More auto accidents and the increased cost to cover them were part of the reason, the outlet said.
“What we’ve seen is that you have insurers who are paying out more in claims than they’re taking in with premiums. That’s not a sustainable business model,” American Property Casualty Insurance Association’s Denni Ritter told CBS News.
But more increases are likely coming, with car insurance rates expected to increase 8.4% in the U.S. this year, the biggest rate increase in six years, according to research firm ValuePenguin.
After reporting a $1.4 billion loss in 2022, Allstate’s president of its property-liability segment, Mario Rizzo, said on the company’s fourth-quarter earnings call last week, “We expect to continue to pursue significant rate increases into 2023.”
Car insurance rates can vary dramatically by state. In Texas, the average price of full coverage is $1,632, according to ValuePenguin.
In California, Progressive Insurance got approval for a 19% rate increase for existing renewals or new policies, according to USA Today.
“That’s a watershed event,” Ellingsworth told USA Today. “It’s a bellwether event for what the rest of the industry might need.”
