Why Your Car Insurance Premiums Keep Rising

Car insurance rates are climbing because insurers are paying out more in claims, and the cost of repairs and medical care has gone up

Your premium increased because the insurance company's costs have risen. When you buy a policy, the insurer sets your rate based on what they expect to pay out in claims, plus overhead and profit. Over the past several years, three things have pushed those costs higher: more frequent accidents, higher repair bills, and increased medical expenses from injuries.

The price of a new car has climbed, which means collision repairs cost more. A fender-bender that cost $2,000 to fix five years ago might cost $3,500 today because parts are more expensive and labor rates have risen. Insurers also pay more for medical treatment after accidents — hospital visits, physical therapy, and prescription drugs all cost more than they did in 2019. When claims cost more, insurers raise rates across their customer base to stay profitable.

Key Takeaways

• Repair costs have risen because new car parts are more expensive and labor rates at body shops have increased.
• Medical costs for accident injuries have climbed, which raises what insurers pay out per claim.
• Your own driving record, age, location, and the car you drive still matter more to your rate than national trends.
• Switching insurers or raising your deductible are the most direct ways to lower what you pay, though rates may rise again next year.
• Inflation affects both what insurers pay and what you pay, but the relationship is not always one-to-one.

How repair costs drive rate increases

When a car is damaged, the repair shop charges the insurer based on the cost of parts and labor. Both have risen. A replacement bumper, headlight assembly, or door panel costs more from the manufacturer than it did three years ago. Labor rates at certified repair shops have also increased — a technician who earned $50 per hour in 2020 may earn $65 or more today, depending on location and shop certification level.

Newer cars are more expensive to repair than older ones because they contain more electronics and specialized components. A collision that triggers airbag deployment, for example, requires not just physical repair but also computer diagnostics and recalibration. Insurers know that the average cost per claim has risen, so they raise rates to cover the difference.

Medical and liability costs after accidents

When someone is injured in an accident, the insurer may pay for emergency room visits, imaging scans, surgery, hospital stays, physical therapy, and ongoing treatment. All of these services have become more expensive. A hospital stay that cost $15,000 in 2018 might cost $22,000 today. Prescription medications, especially for chronic pain or neurological injury, have also risen in price.

Liability claims — where your insurer pays someone else's medical bills or property damage — have become costlier. Lawyers handling injury cases often demand higher settlements because medical costs are higher. Insurers factor this into their rates, knowing that the average liability claim will cost more to resolve than it did five years ago.

Why your personal rate might have gone up more than the average

National rate increases are one thing; your individual rate is another. Even if your insurer raised rates by 5 percent across the board, your premium might jump 15 percent if something changed about your risk profile. An accident or moving violation on your driving record will push your rate up significantly. A move to a neighborhood with higher theft or accident rates will also increase what you pay.

Your age matters too. Drivers under 25 and over 65 pay higher rates because they have more accidents per mile driven. If you turned 25 or 65 in the past year, your rate may have dropped or climbed accordingly. The car you drive also affects your rate — switching from a sedan to a sports car, or to an older vehicle with fewer safety features, will raise your premium. Some insurers also adjust rates based on how far you drive annually or whether you've had a lapse in coverage.

How inflation affects what insurers charge

Inflation — the general rise in prices across the economy — touches everything an insurer pays for. Parts cost more. Labor costs more. Medical care costs more. Rent for the insurer's office and salaries for claims adjusters also rise with inflation. When the cost of doing business goes up, insurers pass some of that cost to customers through higher premiums.

However, insurance rate increases do not always match inflation exactly. In some years, insurers raise rates faster than inflation because claims are rising faster than general prices. In other years, competition between insurers or a drop in accident frequency may keep rates flat or lower them slightly. The relationship between inflation and your premium is real but indirect.

What you can do about rising rates

The most direct action is to shop around. Different insurers price risk differently, and a company that raised rates 10 percent may have a competitor that raised rates 3 percent. Getting quotes from three to five insurers takes 15 to 30 minutes and can reveal savings of $300 to $800 per year. Insurers also offer discounts for bundling home and auto policies, maintaining a clean driving record, completing a defensive driving course, or installing safety devices in your car.

Raising your deductible — the amount you pay out of pocket before insurance kicks in — will lower your premium. Moving from a $500 deductible to a $1,000 deductible typically cuts your collision and comprehensive coverage costs by 15 to 30 percent. This works only if you can afford to pay the higher deductible if you have an accident.

You can also review your coverage limits. If you have an older car worth $5,000 or less, dropping collision or comprehensive coverage may make sense, since the payout would be limited anyway. Keeping liability coverage at your state's minimum is not recommended — most states require only $25,000 to $50,000 in bodily injury liability, but a serious accident can cost far more. Raising your liability limits to $100,000 or $250,000 usually costs only $10 to $30 more per year.

Why rates may keep rising

Even if you do nothing wrong, your rate may increase again next year. Insurers adjust rates annually based on claims data from the previous year. If accidents in your area increased, or if the insurer's claims costs rose faster than expected, rates will go up. This is separate from any change in your personal driving record or circumstances.

Some insurers also use credit scores, education level, or employment status to set rates, though this varies by state and company. A drop in your credit score or a job change could trigger a rate increase even if your driving has been perfect. Checking your rate every 6 to 12 months and shopping around when your policy renews is the best way to stay ahead of increases.

Frequently Asked Questions

Can I lock in my current rate so it doesn't go up next year?

No. Insurers set rates annually or semi-annually, and they can raise your premium when your policy renews. Some states require insurers to give you 30 to 60 days' notice before a rate increase takes effect, which gives you time to shop around. A few insurers offer multi-year rate locks, but these are rare and usually come with higher starting rates.

Is it bad for my rate if I shop around and get quotes?

No. Getting quotes from other insurers does not affect your rate with your current company. A soft inquiry for a quote does not show up on your driving record or credit report. You can get as many quotes as you want without penalty.

Why did my rate go up if I didn't have an accident?

Rates rise for reasons beyond your control: repair costs in your area, medical cost inflation, accident frequency in your zip code, or changes in the insurer's claims experience. Your insurer may also have adjusted rates based on your age, a move to a riskier neighborhood, or a change in how they calculate risk. Check your renewal notice for the reason the insurer gave.

Does paying my premium in full instead of monthly save me money?

Sometimes. Some insurers charge a small fee for monthly payments, so paying in full can save you $5 to $15 per year. However, this is separate from your base rate. The rate itself is set the same way whether you pay monthly or in full.

Will my rate go down if I drive less?

It may. Some insurers offer low-mileage discounts if you drive fewer than 7,500 or 10,000 miles per year. You may need to provide odometer readings or use a mobile app to track your driving. If your commute has shortened, ask your insurer whether a mileage discount is available.