Car insurance expected to rise

Inflation and rising costs have been a large thorn in the side of those with insurance in post-COVID years. And car owners can expect that sting to get worse this year.

According to a new report from insurance comparison website Insurify, car owners in the U.S. can anticipate a 22% spike in average annual car insurance rates this year after a 15% increase in the first half of 2024. The surge follows a pattern of increasing car insurance rates since 2022, when extraordinary underwriting losses of $33.1 billion caused premiums to rise 24% last year.

In Texas, the average annual cost of full coverage insurance was $2,672 in June, and it's projected to jump to $2,915 by the end of the year, representing a 23% increase, the report says. And according to the Texas Department of Insurance, rates jumped 25.5% last year, the highest increase in the past decade.

While numbers for average car insurance can vary slightly between data collectors depending on the coverage options and demographic factors, Texas car insurance is generally higher than the national average.

Chase Gardner, a data insight manager for Insurify, said Texas drivers can put some of the blame for pricier rates on population density and city size, which lead to a greater likelihood of accidents.

"Texas does have an above-average fatal accident rate, slightly higher speed limits and greater population density, which can make dangerous accidents a little bit more common so insurance companies have to pay out more claims," Gardner said.

Although it doesn't join the list of the six most expensive states -- Nevada, Louisiana, South Carolina, Florida, New York and Maryland, where coverage tips over $3,000 -- the Lone Star State still makes it into the next most expensive bracket of states where insurance averages are $2,501 or higher.

The underwriting losses insurance companies face mean that the premiums collected on cars can't outmatch the amount of money lost covering claims and operating expenses, which have grown in recent years due to worsened climate conditions, more expensive car models, increased car theft and significant gaps in the auto technician workforce.

Climate risk affects insurance rates

The impact of severe weather on insurance rates is likely to make most people think of home and property claims, but climate change also packs a big punch toward car insurance.

"A lot of the headlines are on coastal states like Florida, but a lot of these events are severe thunderstorms causing severe winds and hails in the Central U.S that reach into Texas," Chase said.

"I think customers are really feeling it in terms of their premium going up, but it's not the first thing on their mind."

While the average annual cost of full coverage insurance spiked 28% across the country between June 2023 and June 2024, climate change and extreme weather conditions have caused more expensive states to surge over 50% in their year-to-year rates.

For Texas, severe storms like Hurricane Beryl are expected to become more common. As the climate continues to heat up, the National Oceanic and Atmospheric Administration told the Chronicle that it expects the number of billion-dollar weather events to only rise, which is damning for Texas as its Gulf Coast faces some of the highest vulnerability to hurricane landfall.

Climate risk has long played a major role in how insurers set rates for homeowners. But an increasing amount of damage from weather related events in recent years is forcing car insurers to factor it in as well to their rate setting. Comprehensive car insurance typically covers damages from weather related events.

According to an Insurify analysis of National Oceanic and Atmospheric data, billion-dollar cost climate events increased 56% between the period of 2019-2023 and 2010-2019. In that more recent period of years, climate events cost the nation $123.2 billion, with an average of $20.4 billion climate events per year.

Betsy Stella, vice president of carrier management and operations at Insurify, expects climate risk to play a larger role in new areas of insurance in the coming years.

"As we experience tornadoes, hail, and flooding in places where they weren't necessarily a major threat before, the increased frequency and severity of these events will need to be considered in pricing," Stella said in the report.

As drivers grapple with increased rates, Gardner said he's seen more people opt out of full coverage insurance, which includes protections for weather-related events, to save money.

"Our platform users come to compare rates, and we've seen the interest in liability coverage increase substantially starting last year as these biggest price increases were coming through," Gardner said.

Car theft drives up insurance costs

Beyond the unhappy mix of hail, hurricanes and rising temperatures, increased car theft in some states have also been linked to driven-up costs. According to the National Insurance Crime Bureau, Texas came in second to California in the number of motor vehicle thefts last year, with over 115,000 reported incidents last year. That reflects a 10% increase in car theft since 2022.

Pricier cars, pricier repairs

Newer car models have provided drivers in recent years with advanced safety technologies. From collision, lane departure and blind spot warnings, these newfangled features can help keep the roads safer. According to a 2018 study by the Insurance Institute for Highway Safety, vehicles with blind spot monitoring had 14% lower crash involvement rate as compared with regular vehicles.

Despite the benefits of safety technology, car maintenance and repair is getting more expensive. Newer car models often contain thousands of fragile semiconductor chips and demand more attention from an already strained supply of mechanics.

A 2023 Tech Force technician supply and demand report found that 2023 saw a rise in technical school graduates and new hires culminating in a decreased need of new technicians to fill gaps -- 800,000 as compared with the 1 million projected in 2022. However, the automotive technician demand remained the highest at 495,000. On top of the steep need, car maintenance and repair costs have increased 38% in the past five years, according to the Bureau of Labor Statistics. And over the past decade, newer car models have driven mechanical labor hours up 40% per claim.

People across the nation are also driving more, and increased mileage is a significant factor in determining insurance rates. The Federal Highway Administration found that drivers tore through over 3.2 trillion miles last year, which is a farther distance than ever before. And in Texas, drivers amassed over 16,000 miles per driver on average in 2022.

Accident rates spiked when drivers started getting back on the road after the pandemic, Gardner said, which contributed to real losses for insurance companies writing out claims for damages. The greater recklessness on top of inflation led companies to increase rates for customers to reach financial stability again.

While drivers are certainly bearing the brunt of those increases for another year, Gardner said he has hope that rate increases will stabilize by 2025, following the pattern of fatal accident rates that are shrinking back down to normal and waning inflation.

But Gardner still sees climate change as a concerning factor that won't stabilize on its own.

"You can always be hopeful that it doesn't get worse at too bad a rate, but it's expected under climate change we'll still see elevated levels of weather damages," Gardner said.

How to save on the spike

With increasing car insurance costs, drivers are looking for options to save. Car insurance companies typically set personal rates based on factors like your driving record and claims history, your age, gender and marital status, where you live and how much you drive and your credit score.

But more and more insurance companies are adding Telematics-based insurance, or usage-based insurance to set rates for drivers. While programs differ across companies, the key component is that they set drivers' rates based on driving safety and mileage to calculate a driver's risk level. Insurance companies that use Telematics programs monitor these factors through devices like mobile apps, diagnostic port plug-in devices and Bluetooth beacons.

"If you're a safe driver and feel good about that and comfortable with a device in your car, you can get a better rate. It's a way to tell your insurance company, 'I'm a good driver,'" Gardner said.

These programs offer the promise of lowered rates for being a better driver, so if you make good choices on the road, you could pay less. Still, there can be downsides to the accuracy of monitoring and other factors that drive up costs. For example, some monitoring apps will track a driver's behavior as their own when they are a passenger in someone else's car. Certain road choices can also place someone in a "bad driver" category, like accelerating or braking quickly, or driving a lot late at night.

Pay-as-you-go insurance plans are also a good option for drivers that hit less than 10,000 miles a year, which could be helpful for people who work remotely or on hybrid schedules, Gardner said.

Ben Gonzalez, a communications specialist with the Texas Department of Insurance said his advice to customers might be the same as any year, but with the steep price hikes, it's more critical than ever.

"If your bill is going up you need to talk to your company and ask why that is and make sure you're getting all the discounts. Maybe your coverage needs to be changed," Gonzalez said.

"It's not uncommon for people to stay with the same company year after year or the one your parents use. You can't do that anymore," Gonzalez said.

Gonzalez recommends drivers ask their car insurance company if it offers discounts for lower mileage, keeping a good driving record and setting up auto payments. Drivers can also look at their deductibles, review their coverage and compare sample rates at HelpInsure.