Drivers squeezed as auto insurance costs soar across U.S.

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Car insurance is a growing burden for Kalisa Hobbs.

Hobbs, who lives near the northern shore of Louisiana’s Lake Pontchartrain, said the cost of her auto coverage jumped almost 30 percent this year when State Farm added hundreds of dollars to her annual premium, raising it to $1,806. “I’m not going to go hungry or homeless, but like everybody else, I live on a budget, and when that budget gets interrupted, it’s difficult,” said Hobbs, 56, who works as a communications manager at a paper mill. “It’s just on my credit card, and I’ll pay it off when I can.”

Hobbs has been swept up in a larger trend affecting hundreds of thousands of American drivers: soaring car insurance rates, with some states seeing increases above 50 percent in the past year.

Premiums have kept climbing even as other types of inflation have cooled. According to the Bureau of Labor Statistics, car insurance for U.S. drivers in July was 16 percent more expensive than in July 2022, and 70 percent more expensive than in 2013.

In Indiana, auto insurance rates rose 28% on average in the first six months of this year, the fifth-highest increase among states, according to online agent Insurify.

“Car repair costs, body shop wages, and used car prices have all had significant increases,” said Frank Palmer, chief insurance officer at Root Insurance. “The entire industry has had to raise rates to keep up with these trends.”

Motor vehicle maintenance costs, for example, are up 13 percent from July of last year, according to the Bureau of Labor Statistics.

“It’s more expensive to diagnose newer vehicles,” said David Woodall, a mechanic at Metro Motor in Washington, D.C. “The parts aren’t a whole lot more expensive, but the frequency of repair on them is more than it used to be. If an air bag goes off, that’s thousands of dollars—a new car might have eight air bags in it.”

But the rate hikes are also an attempt by insurers to make up for big payouts driven by floods and natural disasters, which insurers categorize as “catastrophe losses.” States prone to climate disasters have seen some of the steepest auto-rate hikes.

In Colorado, car insurance premiums have increased 52 percent since last July as blizzards, tornadoes and hailstorms have led to an increased number of claims. And in Florida, premiums have soared 88 percent as insurers scramble to make up losses from hurricane-linked damage claims.

“Regular people are being priced out of the state,” says Inger Berg, a resident of Pensacola, Fla. She says Allstate recently hiked the policy on her Volkswagen Jetta by $85 a month.

The hikes follow a tough year for many insurers.

In 2022, State Farm reported $13.4 billion of underwriting loss in its auto insurance department. Allstate, which reported a $678 million loss in that sector in the first half of 2023, increased its auto insurance rates by 9.3 percent across 15 locations in May to make up for the losses, Allstate chief financial officer Jess Merten said last month.

State agencies have largely gone along with these hikes, executives said.

“We’re going to maximum file rates everywhere we can, and we’re not getting as much pushback from regulators because the numbers are pretty clear,” Allstate chief executive Tom Wilson said during the company’s most recent earnings call. “Like, it’s not like we’re making it up.”

Rising rates especially hurt those who rely on their vehicles to get to work or manage family life, experts said, with many drivers seeing their budgets stretched to the brink.

Car insurance is required by law―”just another part of adulting,” as Hobbs put it―and rates can go up or down based on factors that are out of any individual’s control, even with a clean driving record.

A driver’s auto bill can increase simply because of where they live, or because repair services they haven’t used are becoming more expensive.

That’s what happened to Hobbs when State Farm hiked her annual premium by $400. She was in one accident but didn’t file a claim because it wasn’t her fault, she said. She was told it was part of a statewide increase this year.

State Farm spokesman Justin Tomczak did not address Hobbs’ account specifically, but said car insurance premiums in Louisiana are expected to increase by about 17.7 percent in 2023, for both new and existing customers. Higher premiums in Louisiana and elsewhere are driven by inflationary pressures, supply chain issues and higher claim costs, he said.

“We continue to adjust to these trends to make sure we are matching price to risk,” Tomczak said in an email.

Although auto insurance rates in Louisiana actually fell 6 percent in 2022, the state’s average premium of $2,546 remains the second-highest behind Florida’s. Hobbs pays less than that, but she feels the sting of every increase in her total insurance bill, which she estimated at more than $22,000 a year across multiple providers for all forms of coverage, including property, medical and life insurance.

Consumer advocates point out that the auto insurance industry had a record year in 2020, when fewer cars were on the road but the rates were priced in from the previous year.

No matter how much control regulators have, insurers are allowed to set profitable rates, said David Forte, a policy adviser for the Washington State Office of the Insurance Commissioner. Even in states with strict oversight, such as California and Washington, Forte said, insurers are allowed to price in an estimated profit of about 5 percent.

Meanwhile, states with looser regulations are finding new ways to control costs. Last year, in Georgia, the state’s insurance commissioner said he was “angry and disappointed” in Allstate for raising rates 40 percent. In May, Gov. Brian Kemp passed a law that gave state insurance regulators more control over prices.

But regulators have to tread a fine line between controlling costs and driving away insurers. Some insurance companies are abandoning parts of the Southeast, leaving drivers with few options. Farmers Insurance recently suspended new policies in California, Louisiana and Florida, for example.

“There’s one thing worse than rising rate hikes,” Georgia deputy insurance commissioner Steve Manders told The Washington Post. “And that’s not having coverage at all.”

In southern Mississippi, student Andrew “AC” Bledsoe has been driving for Uber in the summer months, when his graduate stipend to study lighting and sound design isn’t paying the bills. In early 2022 he signed up with Root Insurance Company, which tracks policyholders through a cellphone app and promises cheaper rates for safe drivers.

Bledsoe said he was led to believe that good driving behavior would keep monthly insurance premiums low, but his rates kept climbing even though he retained a driver safety rating of eight out of ten. His six-month insurance rate climbed from around $1,150 to nearly $1,800―growing larger than his car payment and not far from his monthly share of rent.

“It sounded like a great deal because I take pride in staying safe on the road,” Bledsoe said in an email.

“But,” he said later in an interview. “It wasn’t in my budget for the price to go up.”

Root’s Palmer said the company recognized industry-wide loss trends sooner than other insurers. He predicted that other competitors “will continue to take rate increases going forward” and said he sees Root’s good-driver discount as “still a useful tool to bring insurance costs down for good drivers.”

But it’s not useful enough, in Bledsoe’s view. He’s switching to State Farm, which he says offered him a cheaper rate.

The higher costs of car insurance are being passed down to the country’s most financially vulnerable drivers, economists and consumer advocates say.

Lower and middle-income households are already squeezed by the rising cost of shelter, KPMG chief economist Diane Swonk said, and car ownership is yet another cost that harms them disproportionately.

Federal rules allow insurers to consider socioeconomic factors when setting rates, leading to the worst increases being borne by the people least able to afford them, said Doug Heller, director of insurance at the Consumer Federation of America.

“If you have a blue-collar job, or if you only have a high school degree, a number of companies will charge you more than if you’re a white-collar professional,” Heller said. “Everybody’s facing rate hikes, but a greater share is borne by lower income drivers.”

Families also often face a heavier financial burden, especially when all adults in a household, along with teenage children, need transportation to work. And recent immigrants can suffer a financial penalty if insurers won’t accept their out-of-country driving experience.

Refugee families living in the United States, for example, have increasingly been downgrading from multiple cars to just one, said Jon Vosper, an executive at the aid organization International Rescue Committee. Those refugees are struggling with higher premiums which, along with rent, make it harder to live in America’s car-centric suburban areas, according to Fred Rabin, a financial education specialist with IRC in San Diego.

Rabin recalls one client, an Afghan refugee, who was quoted at nearly $550 per month because the insurance company wouldn’t count his previous driving experience. But Rabin says his clients have no choice.

“A car here is a need, not a want,” Rabin said. “If you don’t have a car, you can’t work, you can’t afford expenses.”

Some drivers are downgrading to “liability-only” policies that fulfill legal requirements but otherwise offer little, if any, coverage, Vosper said.

Driving without insurance is illegal and can lead to the suspension of a driver’s license—or even jail time in some states—but some drivers are taking the risk and dropping insurance altogether. A 2023 Policy Genius survey of nearly 3,000 drivers ages 17 to 34 found that in the past year, 17 percent of them opted to drive uninsured.

But Louisiana resident Hobbs doesn’t see that as an option. She’s sticking with State Farm for now despite her rate increase, assuming other providers would charge her similarly.

“I sucked it up and paid it, because what can I do?” she said. “I have to have insurance on my car.”

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8 thoughts on “Drivers squeezed as auto insurance costs soar across U.S.

  1. No on Biden, yes on Global Warming, and Climate Change generally. Hurricanes in Southern California, hail and other substantial storms across the midwest, rain in the east and west. Wild fires in Canada and across the US. All these things impact reinsurers, and when reinsurers are impacted, they raise prices or reduce coverage. Reinsurance costs are passed along to insurers, and then to policyholders. Reducing reinsurance coverage means the insurers are potentially exposed, and so need to charge more for classes of business to make sure they have the money to pay claims.

    Inflation is a factor, but supply chain issues are a huge part of the problem. If a mechanic can’t replace the parts in your car, and your car can’t run, then you have a rental for a longer period of time. which will cost the insurance company of the person who hit you more money. As noted above, the parts aren’t necessarily more expensive; they just aren’t available. And people are demanding more money to work in any field, including insurance and auto mechanics and body shop folks and whomever. Costs are going up. Auto insurance and homeowners insurance trade off being the loss leader for most insurers; we sell you a homeowners policy knowing it will probably generate a loss so we can sell you auto in years when auto is good. And vice versa.

    And let’s not insurance fraud driving up costs. Personal property claims increasing during storms, and after fires. Fraudulent accidents. Injuries that don’t really exist.

    It’s not a simple problem. But as a society, its a problem.

    1. Insurance fraud is very rare (insurance companies have HUGE well funded anti-fraud departments). “injuries that dont exist” are only in movies. Did you know that State Farm has the biggest law firm in the country, who are salaried State Farm employees, used ONLY to fight injured people on their claims? You know what isnt rare? wrongful denial of claims. Educate yourself and stop listening to big insurance’s narrative. Insurance companies do a cost to benefit analysis and fight whenever possible to not pay out claims because that increases their bottom line. They are not victims.

    2. Steven – I personally know people who have gone to injury attorneys following accidents that did not injure them, and left the ordeal with cash in their pockets. Similar things happen following storms – some damage to a car or house will be inflicted in a way that does not warrant coverage, but one bad storm comes through and it’s easy to frame the damage as insurable. These things make insurance more expensive for all of us.

      At the same time, insurance companies definitely penny pinch when they shouldn’t and it’s a serious problem. It’s just as serious as you made it out to be.

      These things are not mutually exclusive.

  2. For the most part, our country’s infrastructure and zoning rules force every person over 16/17 years of age to travel virtually everywhere via car. This inherently leads to a system where a lot of people who shouldn’t be driving are on the roads. The system poses a risk to everybody and keeps insurance costs high. For a developed country, we have very high insurance premiums and a very high car accident death rate.

    Additionally, cars are a huge sink on the American economy. Time wasted while commuting drags the economy down; car loans and car payments drag the economy down; and the negative impacts of driving have measurable impacts on cognition and public health that drag the economy down.

    It’s time to be intentional about providing other means for getting around our metropolitan areas. Good transit, pedestrian, and cycling infrastructure is so important – plus, it requires less expensive infrastructure to maintain. Roads and the associated spread out sewer lines, water lines, electricity lines, etc. are expensive.

    This isn’t about “a war on cars” or anything like that. Having other options does not prevent one from driving should they choose. In fact, once other options are good enough, it makes driving easier. Having fewer people on the road is a great thing for everybody, and even those who never plan on using their feet or hopping on a bus/in a train should recognize this.

    1. Largely, America’s zoning laws and infrastructure decisions are authoritarian and resemble a planned economy. There are often several layers between elected officials and those who make decisions about what to put in public right-of-ways. Zoning laws – which almost always contain ridiculous parking minimums – are against the very spirit of a free market. Combined, we end up with a system where people have one mode of transport that is viable for full participation in day-to-day life. It’s a point of weakness in this country.

  3. Robert H.: no, insurance fraud is a “thing”. And yes, I know about State Farm’s and other insurance companies in-house lawyers and “law firms.” And yes, they are there to handle claims against injured persons. So what? If they didn’t hire for staff attorney programs, they’d hire outside firms and in many cases pay higher claim defense expenses. Which have to be paid for by poliyholder premium.

    Fraud is not just in movies. In fact, there are very few movies about insurance claims. Usually on the life insurance side…

    Organized fraud rings have been broken up all across the country. I handled an interesting case years ago in which 10 more people than would fit on the inter-city bus, which was not at capacity, claimed injury. It was here in the midwest, with the trip originating in Indiana. Fortunately for the insurer, there was a priest on board, and he was the only one who stepped up to say the others were not on the bus, but arrived in cars afterwards and joined the crowd of passengers standing outside the bus before the police arrived.

    The concept of what is “owed” has been blow out of proportion. Every little accident becomes a lottery ticket. Plaintiff lawyers advertise who will get you the biggest reward. Expections are inflated beyond reality.

    Yes, I work in the insurance industry, in claims to be specific. Yes, I’ve had family members and friends severely injured in auto accidents. Yes, I know first hand what an auto accident can do to a person and their family.

    But this story you claim about the big insurers giving the shaft to the poor little consumer is just not reality. Do insurance companies try to limit claim payments? Of course they do. And you can thank them. Because otherwise, you couldn’t begin to afford insurance. If the suit was worth so much, a lawyer would take it to trial and seek and excess judgment and then perhaps a bad faith claim assignment.

    Do insurers have to make a profit? Yes. Otherwise, they go out of business. In years past, an insurer could reduce rates or be more liberal on claim payments, and make up the difference with investment returns. But that’s not been the case for several years now. Now, insurers have to make money off the insurance business to stay in business.

    No, sir, I already know this topic. Very well. My information doesn’t come from Fox News, or One America, or other populist journalists. It comes from living it.

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