Why Auto Insurance Rates Are Soaring
The cost of auto insurance has skyrocketed in recent years, pushing already tight budgets to the brink. Inflation, high interest rates, and elevated car prices have made vehicle ownership feel like an impossible dream for many. In 2024, the average annual cost for full auto coverage is projected to rise by 22%, reaching $2,469. In some major cities, like New York, policies can exceed $6,000 annually—more than three times the national average.
This surge in rates has outpaced general consumer inflation, making car ownership more expensive than ever. Meanwhile, less costly vehicles like the Subaru Outback and Honda CR-V remain among the cheapest to insure, while high-end models like the Tesla Model S Performance and Audi R8 Quattro carry the highest insurance premiums.
The Factors Driving Rate Increases
Five major factors have contributed to the sharp rise in auto insurance costs since 2022:
1. Rising Repair Costs: Inflation, supply chain disruptions, and labor shortages drove repair costs up 20.7% between 2022 and 2023. Electric vehicle (EV) repairs, in particular, tend to be costlier, increasing claim frequency and severity.
2. Technological Complexity: Advanced Driver Assistance Systems (ADAS), sensors, and other technologies have made newer vehicles more likely to be totaled in accidents. Totaled vehicle claims have jumped 29% since 2020.
3. Uninsured Motorists: An increase in uninsured drivers, from 11.1% in 2019 to 14% in 2022, has shifted more financial burdens onto policyholders, leading to higher premiums.
4. Legal Costs: Policyholders hiring accident attorneys earlier in the claims process have driven up legal expenses, increasing overall claim costs.
5. Extreme Weather Events: Frequent hurricanes and hailstorms have inflicted billions of dollars in damage, causing unpredictable payouts and further straining insurers.
The Impact on Dealerships and Consumers
Rising auto insurance rates have not only hurt consumers but also impacted dealerships. With new car prices still averaging above $48,000 and loan interest rates ranging between 7.5% and 10% for prime borrowers, monthly car payments can easily exceed $1,000 once insurance is factored in. This has led 52% of households to delay purchasing a new vehicle in the past year due to high ownership costs.
Used car buyers, particularly those with subprime credit scores, are feeling the pinch even more. In many cases, monthly insurance premiums are exceeding car payments, making it difficult for dealerships to close sales. Joel Bassam, President of Easterns Automotive Group, reported that high insurance premiums have resulted in his company missing 10-15% of potential deals.
When Will Relief Come?
Relief from skyrocketing auto insurance rates may not arrive until late 2025 or 2026. The auto insurance market is cyclical, shifting between hard and soft phases. While there are signs of stabilization, with some insurers beginning to file for rate reductions, approval processes can take months due to regulatory requirements.
Dealers’ Strategies to Offset Insurance Costs
To counter rising premiums, some dealerships are adopting creative strategies. Dealers shared these details with The Car Dealership Guy.
1. Structuring Deals Creatively: Dealers are adjusting sales strategies to lower monthly payments and allocate more budget to insurance costs, such as seeking vehicles eligible for tax credits.
2. Embedding Insurance into Sales: Many dealerships have integrated digital insurance marketplaces at the point of sale, allowing customers to obtain real-time quotes from multiple carriers.
3. Vertically Integrating Insurance Services: Larger dealer groups are launching in-house insurance services, enabling them to offer lower premiums and close deals more effectively.
The market appears to be transitioning, and auto insurers are under pressure to adapt to competitive forces and technological advancements. As dealers continue to innovate and consumers seek affordability, the hope is that the era of drastic insurance hikes is slowly coming to an end.
