Car insurance rates look set to deliver more pain in the New Year after already soaring an unprecedented 20% in 2023, according to a recent study.
Insurers dealing with more considerable losses because of a surge in severe accidents and more than two years of elevated inflation have increased premiums to offset historically poor underwriting results. There is little indication that the increases are done as auto insurers continue to seek regulatory approval for further rate hikes, according to the Jerry study.
Since April 2021, auto insurance has risen 35% and in October, it soared at an annual rate of 19.2%, the fastest increase since at least 1985, according to the study. Three-quarters of Americans said that the rapid cost growth means car insurance is becoming unaffordable and more than half said high premiums have forced them to cut spending in other areas.
"There is no sign that insurers are done with steep rate increases as they seek to catch up to the soaring costs they've faced in recent years," Henry Hoenig, Jerry data journalist and study author said. "That spells more pain for American drivers."
One way to take control of car ownership costs is by making sure you are paying for the insurance you need. Shopping around for new auto insurance could help lower your costs. The Credible marketplace can help you compare multiple providers and find your personalized rate in minutes without affecting your credit score.
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Skyrocketing car insurance rates are just part of the current car ownership affordability crisis. Vehicle prices and the cost to finance them have soared in sync with interest rates.
The Federal Reserve has raised interest rates 11 times since March of last year, pushing the federal funds rate to a 22-year high of 5.25% to 5.5% to slow the economy and lower soaring inflation. Consequently, the annual percentage rate (APR), or the amount Americans pay to finance a new car, rose to 7.4%, while used vehicle rates increased to 11.2% since the second quarter.
Those higher financing costs mean that roughly 17.5% of conusmers who have financed a new vehicle pay more than $1,000 a month on their car note in the third quarter of 2023, up from 17.1% the previous quarter, according to a recent Edmunds survey.
Beyond car insurance and financing expenses, the cost to maintain and repair vehicles has also risen sharply in recent years. Vehicle repair costs have increased by roughly 33% since March 2020, partly because it's more expensive to repair cars with more advanced technology today.
"The prices of vehicles, maintenance and repair services, and vehicle parts have all risen sharply in recent years," said Hoenig. "But none have risen faster than insurance."
Shopping for auto insurance is one way to lower your spending on car ownership. Visit the Credible marketplace to compare multiple providers and find your personalized rate in minutes without affecting your credit score.
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Younger insurance customers are increasingly embracing AI solutions in the insurance space, according to a Policygenius report. Fifty-four percent of consumers aged 18 to 34 said they would trust AI to accurately process applications, answer questions or handle claims without human involvement if it meant a faster process – roughly three times more than customers aged 55 or older.
Insurers are increasingly leveraging AI solutions for automating basic administrative tasks, quantifying and pricing an applicant's risk by analyzing hundreds of thousands of data points and in the claims process. Moreover, the report said that using AI in underwriting and policy pricing, customer service and claims could improve productivity and reduce operational expenses by up to 40%, savings that insurers could potentially pass on to the consumer.
"But there is also a fair amount of risk that comes with the increased use of AI in the insurance sector, namely if it will act ethically and avoid bias and discrimination when left to make decisions around applications or claims," the report said.
If you are struggling with car repair payments and want to save money, you could consider finding a new auto insurance provider to lower your premium. Visit Credible to compare multiple car insurance providers at once and choose the one with the best rate for you.
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