Car prices may finally be easing, but there’s a new storm brewing for American drivers: skyrocketing car insurance premiums.
A recent report from Insurify, an insurance comparison shopping site, reveals that the average cost of full auto insurance in the U.S. surged to $2,329 in the first half of 2024. That’s a 15% hike from 2023 and a jaw-dropping 48% increase compared to 2021.
But the bad news doesn’t stop there. By the end of 2024, the cost of coverage is projected to climb even higher, reaching $2,469. And while the national average is bad enough, some states are facing even more dramatic increases, with premiums expected to rise by more than 50%.
Minnesota: The Storm’s Epicenter
Minnesota tops the list of states with the sharpest projected increases. Insurance premiums in the Land of 10,000 Lakes are expected to soar by 61%, bringing the average annual cost of full coverage to $2,597, up from the current $2,315. The reasons behind this spike are as severe as the weather events the state has been experiencing.
In 2023, Minnesota was hit by a storm that caused $1.8 billion in damages, with hailstones the size of golf balls and baseballs wreaking havoc across the state. This has forced insurance companies to reassess the risk of insuring vehicles in what was once considered a “severe weather safe haven.” But it’s not just Mother Nature to blame; the state is also grappling with a rise in insurance fraud. The Minnesota Commerce Fraud Bureau reported an 11% increase in insurance fraud investigations in 2020 compared to the previous year, marking a 57% spike over the past five years.
Missouri: A Close Second
Missouri isn’t far behind, with premiums expected to rise by 55% this year, pushing the average annual cost to $2,673. Like Minnesota, Missouri is seeing its insurance rates “catch up” to the national average due to a combination of severe weather events and other factors.
These states, once known for their relatively low insurance costs, are now experiencing a dramatic shift. “What we’re really seeing is them kind of catching up to the average national insurance rates,” said Chase Gardner, Insurify’s data insight manager. “And they’re doing so pretty dramatically this year because of the severe weather factor.”
California: The Aftermath of a Freeze
In California, premiums are expected to jump by 54% this year, reaching an average of $2,681. The Golden State’s insurance woes are partly due to a rate freeze during the COVID-19 pandemic. While other states adjusted their rates in response to rising costs, California kept its rates locked, leaving insurers struggling to maintain profitability. Now that the moratorium on price hikes has ended, insurance companies are seeking substantial increases to make up for lost time.
“California kept rates frozen for longer than any other state,” Gardner explained. “During that time, costs were getting more expensive nationally and in the state. Accident rates were increasing. Inflation, particularly for vehicle repairs and maintenance and for new vehicles, kept getting worse. Natural disasters were kind of increasing in frequency.”
The result? Insurers are now requesting “dramatic” rate hikes, and some are even leaving the state altogether.
What’s Driving the Spike?
Several factors are contributing to this surge in auto insurance premiums. The price of new and used cars skyrocketed after the COVID-19 pandemic, driven by supply chain disruptions and heightened demand. With vehicles now more expensive and costlier to replace, repair costs have surged, driving up insurance rates.
The situation is compounded by a shortage of mechanics, which is driving up auto repair costs even further. According to the TechForce Foundation, the number of graduates completing post-secondary programs in the automotive sector has plummeted by 20% since 2020, and the number of automotive technicians is expected to continue declining in the coming years.
Insurance companies are also trying to recoup losses incurred in 2021, a year that saw a sharp rise in fatal car accidents. “Insurer losses result from a combination of inflationary pressures – like the rising cost of vehicle repairs and the skyrocketing price of new cars – and unprecedented climate catastrophes that drive weather-related claims in states that haven’t historically seen as much of this type of damage,” the Insurify report stated.
A Bleak Outlook for Drivers
Auto insurance premiums are most expensive in Maryland, where the average yearly cost is $3,400, and South Carolina, where it costs $3,336. Legislative changes in these states have increased insurers’ financial responsibility, contributing to higher premiums. Other states with sky-high premiums, including Florida, Louisiana, and Nevada, face expensive weather-related damage from events like hurricanes and wildfires.
As climate risk becomes a more significant factor in pricing, drivers in states previously considered low-risk are now feeling the pinch. “I think climate risk will likely start to play a role in new areas,” said Betsy Stella, vice president of carrier management and operations at Insurify. “As we experience tornadoes, hail, and flooding in places where they weren’t necessarily a major threat before, the increased frequency and severity of these events will need to be considered in pricing.”
The bottom line? American drivers are facing a perfect storm of rising costs, and there’s no clear end in sight.
