3 Reasons for Rising Car Insurance Premiums

Across the US, car insurance costs have been skyrocketing over the past few months. Compared to what they were in March 2023, rates were up by 22.2% percent last month according to the most recent Consumer Price Index. To put that into perspective, economists haven't seen a year-over-year spike that severe since 1976.

These climbing insurance rates stand out at a time when inflation has largely calmed and the cost of things like fuel and parts have stabilized. While those other expenses are also pricier than they once were (primarily due to post-pandemic inflation), economists aren't expecting them to surge over the course of 2024. The same can't be said about fleet insurance costs.

So why have insurance prices been going through the roof lately? Here are the biggest reasons:

1. More frequent accidents

If you've ever felt like people have been driving more recklessly over the past few years, it might be gratifying to learn that telematics data supports your hunch. Cambridge Mobile Telematics (CMT), a company that describes itself as "the world's largest telematics service provider," tracks how millions of drivers behave behind the wheel for usage-based insurance programs. By reviewing the data their apps collect, CMT has observed a dramatic uptick in distracted driving behaviors since COVID-19 upended the world.

And since around 2020, both the frequency of serious vehicle accidents and the severity of the average auto insurance claim have increased substantially in the US. In response to their customers' vehicles suffering greater amounts of damage more often, fleet insurance providers argue that increasing their rates is a necessary means of adapting to a new normal.

2. Increased repair costs

For the past couple years now, getting a good deal on a vehicle has been an uphill battle. During the pandemic, factory closures and supply chain disruptions resulted in historically low inventory levels, which, in turn, caused vehicle prices to spike. When the worst of COVID-19 was finally behind us, inflation soon reached historic highs, and vehicle prices followed suit. Even now that inflation has largely settled, car prices are notably higher than they were just a few years back.

As one might expect, this increase in car prices (and the parts they rely on) has had a knock-on effect on maintaining and repairing fleet company vehicles. Working on vehicles is simply more expensive these days, and as a result, insurance providers have raised their rates to offset their increased expenses.

3. Extreme weather

Mother Nature put America through the wringer throughout 2023. By the National Oceanic and Atmospheric Administration's count, 28 weather and climate disasters afflicted the US last year. Combined, those floods, tornados and other severe weather events caused at least $92.9 billion in damages.

Consequently, many insurance companies ended up paying out signficantly more in catastrophic claims than in years prior. According to the Insurance Information Institute (III), in 2023, insurers on average paid out more than $1.10 for every $1 premium they collected.

To compensate for those losses, fleet insurance providers have raised their rates in recent months. In a comment to National Public Radio, III's CEO said "Nobody wants to have that higher-price bill," but added that companies "need to price insurance according to the risk level that's out there."

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If learning about the forces that influence car insurance costs has left you feeling powerless, don't despair. Remember that there are ways for you to lower your insurance costs (and improve the health of your assets and the safety of your fleet drivers in the process).