Auto insurance costs have soared 50% over 3 years

The generational surge in inflation since Covid may have permanently altered the auto insurance market.

According to Creative Planning market strategist Charlie Bilello, the average cost of auto insurance in the United States has reached a record $2,329 per year. It marks a 50% increase over three years, the largest since 1975-1978.

By comparison, the three-year change in auto insurance rates was less than 5% in early 2022. Rates began to spike in the second half of 2022 before accelerating further in 2023.

Bilello said, “Surging auto insurance rates have been a huge factor” behind elevated transportation inflation—a category that increased by 8.8% year over year in July.

He described the surge in auto insurance as a “stunning, punishing increase,” which reflects the impact of cumulative inflation since the pandemic.

Although the Consumer Price Index (CPI) is growing at a smaller rate than before, prices are still up overall compared to 2020. In Bilello’s view, this cumulative inflation should dispel any rumors that consumer prices are going down.

For many Americans, insurance premiums have been one of the most crippling aspects of inflation, so much so that nearly half of customers are considering switching carriers just to save a few dollars.

What’s going on with insurance?

Insurance companies say they’ve had to increase premiums because of higher new car prices, soaring repair costs, and more frequent claims.

Based on Bilello’s data, the typical American family earning around $74,000 a year spends more than 3% of their income on auto insurance alone.

Many of them have had enough.

According to data from LexisNexis Risk Solutions, a record 42% of auto insurance customers have researched switching carriers over the last 12 months. Even customers who’ve been with the same carrier for decades are exploring other options, said LexisNexis vice president Chris Rice.

According to Doug Heller, an insurance director for the Consumer Federation of America, the biggest mistake customers can make is sticking with the same carrier, hoping for a loyalty discount.

“We often [...] are suckered into the belief that if we change insurance, we might lose our so-called ‘loyalty discount,’” he said. The reality is that “the insurance company wins if we do stick with them and don’t shop around.”

Tim Zawacki, a principal research analyst at S&P Global Market Intelligence, told CNN that insurance premiums should begin to moderate in the second half of 2024. “But that doesn’t mean drivers in some markets won’t continue to see rate increases,” he cautioned.

Insurance experts say premiums can vary greatly depending on location because some states allow insurers to price their plans based on the losses they’ve incurred in that jurisdiction.

Nevada drivers have had it the worst, with auto insurance rates in the Silver State being 38% higher than the national average.