Expenses everywhere are rising, but increasing premiums on car insurance have some government regulators starting to push back.
- Insurance companies are starting to increase prices, and it is not just isolated to one area of the country.
- New York, California, and Georgia customers have seen significant price jumps in the last year.
- Even in states like California, where governments can veto increases, rates are still rising. This year alone, California approved over $1 billion worth of car-insurance premium increases, The Wall Street Journal reports.
- Growing prices come as insurers struggle with recent significant losses related to inflation and increased accidents on the road.
- As loss trends increase, customers can expect that their rates will continue to rise over the next couple of years.
Why it’s news
In Georgia, Allstate customers may have seen up to a 40% increase in their insurance premiums. Nationwide clients in California might have seen a 32% bump, and those with State Farm Insurance in New York could be paying 11% more.
With inflation, interest rates, and the cost of living creeping higher, consumers are feeling the pressure. Now as car insurance grows more expensive, customers are starting to complain. However, the rate increase may be somewhat deceptive.
State Farm account representative in Greer, South Carolina, Shayne Castine, says that while rates are up, it is not as significant as customers may think.
“What I’ve seen is rates are where they were before COVID. So people are freaking out and saying that rates are going up, they’re just going back up to what they were,” Castine tells Leaders Media. “People are getting out there traveling and taking advantage of the time that they missed while they were inside, and now there’s more risk on the road.”
Premiums have gotten more expensive, but the prices did dip in 2020 during the height of the pandemic. At that time, fewer drivers were out on the road, resulting in fewer accidents, tickets, and needs for vehicle repairs.
Backing up a bit
In 2019, the national average annual car insurance premium was $1,544 per year. By 2020, that number fell to $1,483. In 2021, premium rates climbed back up to $1,529. Now in 2023, the average cost for a full coverage policy is $1,730 per year. While price declines during COVID may make the current price increases more obvious, rates are undoubtedly rising.
Insurers argue that rate increases come from a necessity, not a desire for more profit. All costs associated with car insurance have increased, from the cost of parts to repair a vehicle to the health care needed following an accident. Additionally, accidents have increased since COVID, leaving companies with more claims to process.
The Department of Transportation’s National Highway Traffic Safety Administration found that in the first part of 2021, traffic fatalities increased 18.4% since the start of 2020. There were around 20,160 fatalities in the first six months of 2021, the highest number since 2006.
Because of these increased costs, insurer margins are smaller. Last year, these companies lost around 12 cents for every dollar of premium charged. The nation’s largest car insurer by premium volume, State Farm, lost 28 cents on the dollar last year, The Wall Street Journal reports.
Some states have limited control over insurance premiums, and a few are pushing back against rising prices. In North Carolina, for example, the state insurance commissioner has scheduled a hearing to challenge a 28.4% increase from the state’s auto insurers.
After Allstate increased Georgia’s rates by 40%, state legislators have passed legislation that will give the government greater power to review any rate increase requests.
However, states must be careful with how much they push back on insurers. If companies cannot turn a profit, they may pull back from a service area or cause the companies to make larger increases in the future.
In California, insurers were not permitted to increase rates from March 2020 to last fall. As a result, many companies closed offices or removed agent contact information, making it more difficult for new customers to find them. Now that California is allowing increases again, some insurers are asking for significant changes. Nationwide has requested a 32.3% increase, and State Farm has a 24.6% pending approval, according to The Wall Street Journal.
What the customer can do
There seems to be no way to avoid rate increases, but there are some ways customers can save a little money.
“What people do not take advantage of is bundling,” Castine says. “When you bundle your home insurance with your auto insurance, you have a 35% discount on the home in a 17% discount per car. The savings are pretty big when you bundle. I always recommend looking into bundling.”
Castine explains that, at first glance, a bundle may look more expensive, but it can often save the customer money. For example, in a bundle, the customer may pay $60 a month more on car insurance but save $1,000 on home insurance. In the end, the customer could save money each month.
The location also significantly affects a particular customer’s premium rates. If a person has a good driving record and credit score, his insurance can still be high if he lives in an area with high theft. The state of residence can also dramatically affect prices.
Referencing a recent customer who moved from California to South Carolina, Castine says, “Her premium was $60 a month in California, and it’s $115 here. Same person. Same car.”