There’s a good chance your car insurance will go up this year. Across the nation, the average cost of car insurance is expected to rise by 8.4%, according to data from the 2023 State of Auto Insurance report by ValuePenguin.
The site tells that, “every state is expected to see a rate increase of at least 1% this year except California, D.C., Hawaii, Vermont and Wyoming.”
Let’s look at why money expert Clark Howard says it might be time for you to shop around for new car insurance.
Why Car Insurance Rates Are Going Up
The average annual cost of car insurance in the U.S. is around $1,780. But what you pay might be much higher or lower. Drivers in Michigan – for example – face the highest rates with a state average of $4,788. Meanwhile, drivers in Vermont have much lower rates with a state average of $1,104.
What you pay depends on many factors like where you live, what you drive, and your driving history. But even if none of these things change, you still might see changes to your car insurance premiums this year. So, what’s driving up the rates?
Clark points to three key factors:
1. Car Crashes Are More Severe
“For some reason, Americans are more reckless behind the wheel today than they were four years ago,” Clark says during an episode of his podcast. “We are driving more aggressively. It seems like – if you remember back in ‘20 with all the lockdowns and shut downs – roads were wide open. A lot of people developed some really bad habits.”
According to the U.S. Department of Transportation’s National Highway Traffic Safety Administration (NHTSA), those bad habits include “impaired driving, speeding and failure to wear a seat belt.” Unfortunately – as a result – car crashes are more severe than they’ve been since the 1940s.
“The spike [in fatalities] has been surprisingly bad,” Clark says. “Particularly when you think about how road design is much safer than it used to be, and vehicles are much safer than they used to be… All those things cost more money.”
2. Accident Damages Are More Costly
If your car is damaged or totaled in an accident, your insurer is responsible for covering the costs (up to your coverage limit) to repair or pay off your vehicle once you’ve met your deductible.
“The cost of repairing vehicles – or when a vehicle’s totaled, the cost for the insurer paying off that vehicle – both went way up because of the supply shortages that were so prominent in ‘21 and part of ‘22.”
Supply chain disruptions throughout the pandemic have led to some of the highest inflation rates for motor vehicle maintenance and repairs in decades. But using data from the U.S. Bureau of Labor Statistics (BLS), NPR reports that, “the cost of vehicle repairs has risen faster than inflation since 2012.”
Data from the BLS shows that the rate for motor vehicle maintenance and repair in January 2023 was up 14.24% from the same time last year. As the cost to repair and replace vehicles goes up, so will insurance rates.
3. Insurance Companies Are Reinvesting Premiums
When you sign up for insurance, you enter into a contract with your insurer. In exchange for paying a premium, your insurer offers you financial protection against greater losses from covered events.
But insurance companies don’t just take on financial risks. They diversify risks by reinvesting the money made off of premiums into other areas.
“The third factor no one ever talks about is that the way insurers ultimately make their money is off investments,” Clark says. “And their investments cratered along with the rest of us experiencing what happened with the marketplace.”
How an insurance company reinvests its collected premiums will vary from company to company, which means different companies may be experiencing more or less financial impact depending on their investments. As a policyholder, this difference will impact you.
Because different insurers are having different experiences with their investment portfolios, they have had different experiences with overall claims and costs associated with those. There are bigger disparities and bigger benefits to you shopping your auto insurance.”
So, what can you do if your insurer is raising your rates? Keep reading for tips on shopping around and other ways to save.
How To Save on Car Insurance
There are many reasons why your car insurance might go up, but there are also several ways to save money. Here are three to consider:
1. Shop Around
Shopping around for car insurance is one of the best ways to be sure you’re getting a good rate for coverage. When it comes to car insurance, Clark explains that, “the way you’re rated by one insurer, or the way premiums are set for your driving profile with one insurer could be very different – will be very different – from another insurer, and another, another, like that.”
Additionally, since companies reinvest premiums differently, you can expect to pay different rates from company to company for the same amounts of coverage. And when shopping around, the key to getting the best deal is to make sure that you’re comparing the same amounts of coverage.
For example, if Company A gives you a quote using $100,000 of coverage per accident in property damage, see how much Company B will charge for a policy with $100,000 of coverage per accident in property damage. Otherwise, you risk getting a lower rate along with less coverage.
Clark once shared the story of a successful surgeon that highlights the danger of being underinsured.
“He bought state minimums on insurance. His teenage daughter had an accident that caused severe injuries to someone in another vehicle. Her fault and it bankrupted the family.” Clark recalled. “So make sure you have those adequate coverages as you shop around and get quotes, but get those quotes.”
2. Ask About Discounts
In addition to comparing rates for the same amounts of coverage, be sure to find out what discounts an insurer offers that might save you even more money. Here are a few common discounts that many companies offer:
- Accident and/or ticket free
- Defensive driving course completion
- Policy bundling
- Vehicle safety features
But there are many other discounts out there! If you work from home or don’t drive often – for example – many companies offer discounts for driving lower-than-average miles per year. You may also find discounts for federal employees, military affiliation, environmentally friendly vehicles, having multiple cars covered by the same company, and customer loyalty.
Be sure to ask about discounts while you’re shopping around so that any potential savings are reflected in your quote. But remember: the company with the most discounts might not have the best deal.
This was my experience recently when I re-shopped my car insurance. Although my current insurer at the time was offering more discounts – including one for customer loyalty – I was able to save much more by moving to a new insurer.
3. Raise Your Deductible
You can save money on your car insurance if you’re willing and able to take on higher deductibles. According to the Insurance Information Institute, “increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage cost by 15 to 30 percent.”
Final Thoughts
Even if nothing has changed on your end – you haven’t moved, gotten a speeding ticket or been in an accident – there’s a chance your car insurance will go up this year. This is partly because car accidents are more severe across the country, and it’s more expensive to repair or replace vehicles now.
But it’s also because auto insurance companies make their money off investments, which has, “led to cost pressures that vary per insurer,” explains Clark.
And this is exactly why I re-shopped my auto insurance recently. Although I haven’t moved or had any driving incidents, I got notice earlier this month that my car insurance would be increasing by 21%! After shopping around, I found equal coverage that’s going to save me $480 this year!
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