Why are car insurance rates rising faster than the rate of inflation?

Written by Katie Dee

Published on 2023-10-18

In 2023, car insurance rates have risen faster than the overall rate of inflation, leaving drivers wondering at the cause and looking for ways to save money on their own annual premiums. With costs rising rapidly, you may find yourself struggling to control the amount you are paying for your premium. The good news is that you are not alone in feeling this way.

While nobody can fully put a stop to this price increase, understanding the reasons behind it may help to ensure you are not overpaying for your car insurance.

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Why have car insurance rates risen so quickly?

One of the reasons behind these rate increases is the fact that insurance rates tend to lag behind inflation. This is because companies do not realize that claim payouts are higher until they actually start paying out the claims. Additionally, states need to approve the proposed rate hikes from insurance companies, so it takes a bit longer for these increased prices to go into effect.

Another contributing factor is the growing price of buying and maintaining a vehicle. Inflation has caused a spike in the cost of both new and used cars as well as the cost of their replacement parts and the labor involved in making repairs.

With these inflated prices, insurance companies have increased their rates to ensure that they are able to cover any necessary claim payouts.

There have also been several supply chain shortages in the automotive industry. This is because certain manufacturers have stopped the production of specific parts, making them tougher for repair shops to get their hands on. This scarcity of parts in combination with increased demand for them has resulted in rate hikes.

Next, the influx of drivers that have returned to the roads in the aftermath of the pandemic could be influencing the increased rate of insurance.

When COVID-19 was at its peak, states had issued lockdowns, workplaces had either shut down completely or operated remotely, and bars and restaurants closed their doors. With this, the number of drivers on the road decreased significantly, which may have decreased car insurance premiums due to less risk of an accident.

Now, in the post-pandemic world, drivers are back on the road and the likelihood of being in an accident has risen – along with the price of car insurance coverage.

Furthermore, the theft rate for cars has risen in the last few years, resulting in heightened risk for car insurance companies. Rate hikes related to theft are more likely in larger cities with higher crime rates, as the likelihood of a theft occurring is greater.

Lastly, the recent increase of natural disasters has left insurance companies needing to pay out more claims than expected to cover any resulting damage. A higher volume of claim payouts results in increased rates overall.

How to control your car insurance prices

There is no one size fits all when it comes to car insurance rates. The amount you pay depends on your unique driver profile which considers the make, model, and year of your car as well as personal details like where you live and your age. However, even if none of these factors have changed, your car insurance rates may still be rising.

No matter the reason behind the price increase, there are still methods available to help you control the amount you are paying for your car insurance.

Depending on your state’s insurance laws, improving your credit score could help to ensure that you are getting the lowest rate possible. While insurance companies cannot take your credit score into account in some states, there are still several states without these regulations in place.

New York, for example, is currently the most expensive state for car insurance. However, according to Rate Retriever’s quarterly insurance rates report, a New York driver with good credit will pay around 127% less than one with poor credit. That is a difference of almost $4,000 per year.

Additionally, taking a drivers safety course can also help you to reduce your car insurance rates. Several insurance companies such as State Farm and Allstate offer discounts for drivers that have completed defensive driving courses. These courses are designed to make sure your driver safety knowledge is up to par so that you have a smaller chance of being involved in an at-fault accident.

The last and most effective way to be sure you are getting the cheapest car insurance rate possible is to select the insurance company that is best suited to your needs. Take our quick quiz to compare personalized rates from car insurance companies in your area and find the cheapest option for you.

Frequently asked

How does the insurance company determine my rate?

Car insurance companies determine how much they charge you based on your driver profile. Factors that can impact your rates include:

Demographics – your age, home ownership, credit score, and more
Your driving history – how long you’ve been driving, traffic violations, and more
Your car – make, model, and year
Where you live – state and zip code
How much coverage you want

How do I switch my car insurance?

Switching your car insurance is easy, even if you are in the middle of your current policy.

Here are some helpful tips to consider to switch your car insurance:

Decide what coverage you want with your next policy
Check if your current provider charges cancellation penalties or fees
Compare prices from at least 3-5 insurance companies (Rate Retriever makes this easy, giving you personalized rates from the top companies near you)
Get a final quote from at least one of your choices
Cancel your current policy once your new one begins

How much car insurance do I need?

The answer to this question depends on where you live and what you would like to cover.

Each state has its own minimum requirements on the type and amount of insurance needed. When you’re trying to determine what and how much car insurance you need, you can start by reviewing your state’s requirements.

Find out what’s required in your state

Once you review your state’s minimum requirements, you may find that you want additional coverage. For example, sometimes owners of new cars want comprehensive coverage to insure their car from natural disasters and vandalism, even though comprehensive coverage isn’t required by their state. To figure out what insurance you want, you can review the different types of insurance to decide what makes the most sense for your situation.

Learn about the different types of car insurance

How is Rate Retriever different than other insurance websites?

The biggest difference between Rate Retriever and other comparison sites is that we are a free and impartial research tool NOT an insurance marketplace. This means you can’t purchase a policy directly through RateRetriever.com, but you can use our tool to independently research your options and seamlessly connect with the provider you choose.

Unlike other insurance comparison sites, we:

Use third-party data to give you more accurate rate estimates instead of inaccurate, suspiciously low quotes to get you in the door
Do not limit your list of results to paid advertisers
Do not collect your email or phone number before we let you see your results
Give you results after just five questions (however, your results will be more accurate if you complete your profile)

We like to think that Rate Retriever is your insurance companion, not just another insurance comparison site. Our values guide everything we do, which is why we strive to offer transparent, trustworthy insurance tools.

How can I get cheaper car insurance?

There are many ways you can try to get cheaper car insurance. The first is simply to get quotes from multiple providers. This will help you determine if you’re currently receiving the cheapest rates based on your needs and driver profile. Rate Retriever makes the comparison process easy.

Sometimes, the reason your car insurance is so expensive is due to your driver profile. For example, drivers under 20 years old usually pay more for insurance than more experienced drivers, and drivers with a recent at-fault accident or traffic violation typically pay more.

There are ways to lower the cost of your insurance such as taking a defensive driving course. Check with your provider to see if there are any discounts you qualify for or can reasonably earn.

How does Rate Retriever make money?

Rate Retriever works with national and local insurance providers to provide our users with a seamless insurance shopping experience. We may earn a commission from our insurance provider partners when you click on a link, call, or purchase a policy from one of the providers listed on our site. That said, we’re committed to providing you with accurate, bias-free information, and we do not allow our partnerships to limit the results or influence the information we share with you.

We do not sell your personal information, charge you for using our tools, or sell you insurance policies. Additionally, should you choose to purchase a policy from one of our partners, the price you pay will not be adversely affected.

Read our full earnings disclosure