The pandemic sparked a shift in the world of car insurance. Despite providing customers an estimated $16.4 billion in refunds, auto insurance profits increased as fewer Americans drove and the number of auto claims dropped.
But the pandemic continues to shift the industry, and now an increase in insurance costs is expected this year. Supply-chain and labor shortages, high demand for new and used cars, an increase in reckless driving behavior and even natural disasters have created the perfect storm for a price bump.
Cars are more expensive to buy and repair
Increased demand from drivers and a semiconductor shortage has made new and used cars more expensive, and it’s expected to contribute to a rise in rates this year, according to a study from Swiss Re Institute, the research-focused division of Swiss Re Group, one of the largest reinsurance companies in the world. The average cost for a new, non-luxury car reached its highest point ever last year, just over $43,000, and the cost of used cars and trucks increased an estimated 37%, according to data from the U.S. Bureau of Labor Statistics.
The cost to fix cars has spiked, as well. While there’s currently a shortage of auto supplies, the growing use of advanced driver assistance systems, or ADAS, in new vehicles is also driving up repair costs. These systems assist while driving or parking, and use sensors and cameras that can be both difficult and expensive to repair. Even a minor accident could result in a pricey repair bill. This increased cost means more expensive claims for insurers, and claims are already expected to return to pre-pandemic numbers this year.
Additionally, there’s an auto mechanic shortage. There was a sharp decline in the number of working mechanics in 2020, according to a study of auto technician supply-and-demand from TechForce Foundation, a nonprofit that provides resources to aspiring vehicle technicians. And this shortage is expected to continue.
Driving has become more dangerous
Car accidents caused by distracted driving have been on the rise for years. While phone use is a common distraction, drivers are also reading, eating, applying makeup or preoccupied with their children while behind the wheel. Distracted driving caused 9% of fatal car crashes in 2019, according to the most recent data available from the National Highway Traffic Safety Administration. It’s become so bad that the National Association of Insurance Commissioners has labeled distracted driving an epidemic in the United States.
Drivers appear to also be speeding more since the pandemic began, which means a higher likelihood of car accidents. A survey of 500 U.S. drivers done by Erie Insurance found that one in 10 drivers said they drove much faster than normal at the start of the pandemic. In fact, speeding has become such a problem that initiatives have been launched in Maryland and Virginia to develop speed-reduction strategies that can be implemented across other states.
Fatalities from car accidents are increasing, as well. While 2020 saw a rise in car-crash fatalities despite fewer drivers on the road, last year claimed the highest number of auto-related deaths since 2006, according to data from the U.S. Department of Transportation.
Last year’s rates didn’t increase by much
In most states, the average auto insurance rate didn’t increase by much, if at all, according to a recent NerdWallet study. It analyzed annual full coverage car insurance rates in all 50 states plus Washington, D.C., for a good driver with a three-year-old car and found the national annual cost of full coverage declined by an average of $14. Ten states, including Texas and Michigan, saw average declines of $112 or more. Of the states that did see rate increases, the average annual increase was $83, a little more than 5% over 2020 rates.
Meanwhile, the national consumer price index for motor vehicle insurance saw a decline of 3.7% compared to 2020, according to data from the U.S. Bureau of Labor Statistics.
This trend isn’t likely to continue. Major auto insurers have filed to increase rates this year in some states as more drivers are back on the road and the number of auto claims is expected to increase.
You can still find cheaper rates
If you do see a cost increase in your car insurance, you have options:
Ask about discounts you might be missing. Insurers often offer discounts for things like receiving your bill through email, taking a defensive driver course or being a consistently safe driver.
Increase your deductible. A higher deductible means you’ll pay more out of pocket if you need to file a claim, but if you don’t drive regularly or can afford the higher payment, it’s a guaranteed way to lower your premium.
Consider minimum coverage, which is typically the cheapest car insurance option. While you shouldn’t cut coverage just to save money, you can drop comprehensive and collision coverage if you drive an older car, as they pay out only up to the current market value of the car minus your deductible.
Get quotes from other insurers. Shopping around for new car insurance quotes is usually the best way to save. Compare car insurance quotes from at least three insurers and go with the cheapest rate. NerdWallet recommends shopping around at least once a year to guarantee you’re getting the best deal.