Why your auto insurance premiums continue to rise

ByDavidRodeck

Kiplinger’s Personal Finance

Q: Why has the cost of auto insurance skyrocketed? A: To understand the auto insurance market, you need to go back to 2019, says Stephen Crewdson, senior director of insurance intelligence at data analytics company J.D. Power. "Thatwas the last relatively normal year for auto insurance," Crewdson says.

In 2020, the pandemic hit. Suddenly, people started drivingmuchless as they stopped commuting, going on vacation and seeing friends and family.

"Miles drivenwent down, so claims went down," according to Crewdson.

Because insurers collected more than they paid in claims, they returned that money to consumers through refund checks and reduced premiums.

But in 2021, drivers returned to the road— and so did car accidents.

Dangerous driving has increased since the pandemic lockdowns, with more people speeding, driving recklessly and becoming distracted with mobile devices and in-vehicle screens.

"People are looking downwhen they drive now," says Jeff Schlitt, owner of Schlitt Services, an independent insurance agency based inVero Beach, Florida.

The result has been more crashes and claims.

Car crash fatalitieswere up more than 10% in 2022 compared with 2020, according to the most recent data available fromtheNational HighwayTraffic SafetyAdministration.

Repairs are more expensive too. "Vehicles are built with all thesenewsafety features, which is great but adds to the cost," Schlitt says. "It used to cost $300 to replace a broken windshield, but nowit can cost over $1,000 with all the technology."

Auto repair shops still deal with inflation, supply chain issues and labor shortages.

They are passing on these costs to consumers and their insurers. Repairs are taking longer as garageswait on parts, meaning auto insurance policies must provide longer vehicle rentals to policyholders.

Used cars also have been retaining more of their value after the pandemic because of higher demand.

If you total your car, most auto insurance policies pay the value of your vehicle on the day of the crash. Because used vehicles areworth more, on average, than they used to be, they are more expensive for insurers to replace.

Finally, more lawsuits are being filed. If you cause an accident, you’re liable for covering the repairs and medical bills of the injured parties.

Inflation has pushed up these costs for insurers aswell.

These days, people are more likely to sue and to be awardedmuchlarger settlements for their injuries than in the past.

Auto insurance policies usually cap what they pay for lawsuits against you at $500,000 if you buy themaximumcoverage.

You might buy an umbrella policy with additional liability coverage to protect against lawsuits beyond your auto liability limit.

As seven-figure settlements become more common, umbrella insurance costs are also rising.

DREAMSTIME