Why Car Insurance Rates Are Going Up

Inflation, increased accidents, and environmental factors all contribute to rising insurance costs.

Elliot Rieth | 

Jan 8, 2024 | 3 min read

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As car insurance rates spike, drivers face the challenge of trying to afford higher-than-average costs as a result of circumstances beyond their control.

Car coverage rates have been on the rise. According to J.D. Power, nearly one third of auto insurance customers in the United States experienced a rate increase in the last year. Macroeconomic factors, an increase in accidents, and claims caused by an uptick in extreme weather events have led insurance companies to save their bottom lines by boosting their premiums — at the cost of policyholders.

Why Car Insurance Rates Are Climbing

Since 2020, there has been a serious rise in premiums for policyholders. According to the September 2023 Consumer Price Index, motor vehicle insurance went up 19.2% year over year. Although many of the factors contributing to these increases are out of policyholders' control, the ongoing price hikes can directly impact their budgets.

How Inflation Impacts Car Insurance Rates

Inflation has impacted costs of goods and services across the board, raising their overall price by 3.2% in the last year, according to the current Consumer Price Index. In response, auto insurers are steadily increasing their premiums to catch up with this significant inflation rate spike. As cars become more expensive, the costs to repair them do as well, which means car insurance premiums must increase so insurers can cover these expenses.

More Accidents May Drive Car Insurance Premium Increases

Because insurance companies may also consider driving risk when calculating insurance premiums, the recent uptick of motor vehicle accidents could be a prime factor in recent insurance spikes. According to the Insurance Institute for Highway Safety, there were 42,939 fatalities in the U.S. during 2021. That's the highest death toll since 2005.

An increase in auto insurance claims and legal costs leads to more expenses for insurance companies. To make up for these additional costs, auto insurance companies such as Progressive cite an increase in accidents as a reason to raise their premiums accordingly.

Weather Events Could Cause Vehicle and Road Damage

From floods to severe winter storms to tropical cyclones, the National Centers for Environmental Information classifies these often devastating disasters as "billion-dollar weather events," and they're on the rise. In 2023 alone, the NCEI reported there were 25 of these severe weather events, and after the damages from Tropical Storm Hilary are determined, that number may increase.

Not only do these events cause harm directly to vehicles, potentially increasing storm damage claims and premiums, but they also deteriorate infrastructure, which could lead to even more vehicle wear and tear down the road.

The Environmental Protection Agency has stated that climate change and severe weather have a combined negative impact on roads, creating unwanted impacts on vital infrastructure. Unforeseen damage from issues such as potholes can be covered by insurance for those with collision coverage, but these claims are considered single-vehicle accidents. Filing a claim will put the policyholder at fault and likely lead to a future premium increase. Drivers should therefore stay aware of street conditions and avoid neglected roads that may cause damage, which could ultimately raise their rates.

Elliot Rieth

Born and raised in Michigan — the center of the American automotive industry — Elliot's fate of becoming a writer in the automotive space was seemingly predetermined. In addition to covering cars and personal finance for Capital One, he's worked directly with dealers and OEMs to create digital content meant to educate consumers. He's also passionate about music and has written for outlets like In Review Online. When he isn't writing about the latest financial, automotive, and insurance trends, he can be found enjoying a new book or record alongside his two greyhounds.