The cost of owning a car is speeding higher. And it's not just pain at the pump. Higher financing costs and skyrocketing sticker prices are swelling monthly costs. Fast-rising auto insurance costs are also adding to the sticker shock.
The average cost of a full-coverage auto policy is projected to jump to $2,469 in 2024, a 22% increase from $2,019 at the end of last year, according to Insurify, an insurance comparison-shopping website. That means insurance for your vehicle will add $205 each month to your ownership costs.
Part of the premium increase is due to losses suffered by auto insurers. Despite the higher insurance costs faced by drivers, auto insurers are still losing an average of five cents on every dollar of premium they collect, according to the J.D. Power 2024 U.S. Auto Insurance Study.
So, what's causing the spike in auto policy premiums?
Rising Auto Repair Costs
The cost for parts and labor to repair a vehicle has risen by more than 40% since the end of 2019, or before the pandemic. And insurers pass those costs on to drivers, says Shannon Martin, insurance analyst at Bankrate.com. The average total cost of an auto repair was $4,642 at the end of June. That's up from around $3,250 in 2019, according to CCC Intelligent Solutions, an auto repair data provider.
"The costs of labor and to replace or repair your car are just so much higher now," Martin said.
Adding to the repair cost is so-called increased "vehicle complexity," according to CCC. Supply-chain disruptions are also a factor in higher repair costs.
The growing use of technology and computer chips has turned cars into computers on wheels. And these smart-car tech components more expensive. But there's also more of them in the car. The average number of replacement parts for a repair has risen from 10.6 in 2019 to 13.2 in 2022, CCC data show.
And electrification adds costs, too. The average repair cost for an EV is 46.9% higher than that for a gas-powered vehicle. Labor costs per hour have also increased.
"The increasing amount of technology in new cars means that if your car does get into an accident and you need repairs, there's probably more technical parts broken that need to be fixed or replaced," said Chris Gardner, data insights manager at Insurify.
Auto Insurance: Skyrocketing Price Of New Cars
The more costly a car, the more it will cost to repair it, replace it and insure it. And cars — whether it's a sedan, an SUV or an electric vehicle — cost a bundle these days. The average sale price of a new vehicle at the end of September was $47,899, according to Kelly Blue Book. That's about $9,000 (or 23%) more than the $38,948 it would've taken to drive off a lot with new wheels in December 2019.
Increasing Auto Damage From Climate Catastrophes
Wildfires burn cars beyond recognition. Floods can ruin vehicle's electronics, mechanical systems and engines. And hail can do a lot of damage to the car's exterior, too.
Last year, hail-related auto claims represented 11.8% of all comprehensive claims, up 9% from 2020, according to CCC. The increased number of totaled cars and the rising costs to repair damages due to severe storms and wildfires boost insurers' costs and drive up premiums. More than 20% of vehicles involved in collisions are considered total write-offs by insurers, the J.D. Power study found.
Drivers, unfortunately, must come to terms with the higher insurance costs. "(Policyholders) aren't going to be super-encouraged to hear that premiums are probably not going to go down by very much, it at all, in the coming years," said Gardner.
Factor Auto Insurance Costs Into Budgets
Insurance is becoming a larger part of one's auto budget. It's important to know what you can afford before you go car shopping, says Martin. When determining affordability, you must consider your monthly principal and interest payment if you're financing the purchase. Add in the extra insurance cost to come up with your true monthly cost.
And don't forget that if you buy a more expensive car, the insurance costs will be higher. "The best piece of advice is to understand what your insurance budget is before you head to the dealership," said Martin. Martin recommends getting the VIN number from your car dealer and then calling your insurer to get an accurate policy quote before buying the car.
You don't want to fall in love with a car you really can't afford. "Adding insurance on top of the (sales price and financing costs) can make the purchase a huge financial commitment that you weren't necessarily expecting," said Gardner.
Tips To Lower Your Auto Insurance Costs
There are ways to save on auto insurance, however.
First, consider a pay-as-you-go policy. One of the emerging money-savings trends is to sign up for an auto policy that bases premiums on the number of miles driven. "It's called usage-based, or pay-as-you-go, insurance," said Gardner. Typically, the driver pays a lower, flat monthly fee for coverage. And then on top of that pays for the miles they drive, says Gardner.
So, if you're a hybrid worker and commute less and drive less than 10,000 miles a year, you could save potentially hundreds of dollars a year on premiums, says Gardner.
Telematics (or downloading an app or plug-in device in your vehicle that allows your insurer to monitor your mileage), driving habits and speed are also parts of the usage-based discount program.
Drive Safely And Save On Auto Insurance
Second, maintain a clean driving record. Getting a speeding ticket, causing a fender-bender or getting arrested for a DUI will cause your policy premium to skyrocket. So, slow it down, drive safe and do what you can to keep your driving record squeaky clean. Drivers with an at-fault accident on their driving record pay around 42% more for car insurance than do drivers with clean driving records, according to Bankrate.com.
Third, dial in on discounts. Take advantage of as many discounts your insurer offers as you can. You can save money by bundling other policies at the same insurer. You can also pay your policy in full for the year.
You can save bucks by receiving your policy documents and bills digitally rather than on paper. And there are also good-driver discounts, which should motivate you to avoid reckless driving.
Also, boost your credit score. Keep your finances in order. Why? Insurers are increasingly using so-called credit-based insurance scores in their underwriting deliberations. The higher your credit score, the lower your insurance quote will be.
"Try to get your credit score into the highest category you can before shopping for a car and auto insurance, as you'll likely see a big discount," said Martin.
If you're looking for a good deal on auto coverage, USAA, Auto-Owners and Geico offer some of the cheapest full-coverage car insurance (but not all are available to all drivers), according to Bankrate.com.
And lastly, shop around for the best rate. Just make sure you're comparing apples to apples when it comes to coverage.
Rising auto insurance costs are causing more drivers to pay for accident repairs out of pocket rather than file a claim with their insurer, according to a recent LendingTree study. In fact, 39% of insured drivers who got in an accident bypassed insurance, the study found. Why? Aside from the damage being minimal and the deductible being higher than the repair cost, 42% didn't file a claim because they didn't want their insurance bill to go up, according to LendingTree.
