Insurify’s Mid-Year Auto Insurance Trends Report reveals inflation, climate catastrophes, and state regulations contribute to rising car insurance rates in 2023.
Key trends in car insurance prices 2023
- Car insurance prices have risen 17% in the first six months of 2023. Insurify’s data science team projects another 4% increase before the end of the year.
- The national average cost of a car insurance policy is $1,668, representing about 2.4% of the average household income.
- Insurify’s data suggests drivers are cutting coverage to save on policies, with 51% fewer drivers looking to buy full-coverage policies in 2023 compared to 2022. More drivers are also turning to insurance shopping, with a 20% increase in shoppers between 2022 and 2023.1
- Michigan drivers continue to pay the highest car insurance rates in the country, with an average rate of $2,766. Insurify has named Michigan the most expensive state for car insurance for three consecutive years, and the state also has one of the fastest-rising premiums, with a 31% increase between 2022 and the first six months of 2023.
- Auto insurance prices are rising fastest in New Mexico, Nevada, and New Jersey, with an average price increase of 34% in 2023.
- The rising cost of labor, new vehicles, auto body parts, and mechanical parts are driving up premiums. The consumer price index for motor vehicle maintenance and repair has had double-digit surges since September 2022.
- Climate change is top of mind for insurers, with many pulling out of markets with greater climate risk, like Florida and California.
Car insurance rates have already risen 17% since 2022
Auto insurance premiums increased to $1,668 in the first six months of 2023, according to Insurify’s database of more than 90 million car insurance quotes sourced directly from partnering insurance companies. Insurify’s data scientists predict an additional 4% increase this year, putting the total surge in car insurance rates at 22% and the average annual auto insurance price at $1,742 by the end of 2023.
The skyrocketing auto insurance premiums in 2023 are atypical. For comparison, rates increased by 12% in 2022 and even dipped slightly in 2020 and 2021 as insurers benefited from fewer claims as a result of COVID-19 lockdowns.
Inflation, the increasing cost of auto parts, natural disasters, legislative changes, and insurers grappling with record-breaking losses have converged to produce the dramatic price hikes policyholders face in 2023.
States with the fastest-rising car insurance costs
Car insurance premiums are rising nationwide but are increasing the fastest in New Mexico, Nevada, and New Jersey. Unique factors, ranging from changes in state legislation to state-specific changes in labor markets and accident rates, contribute to each state’s rising prices.
New Mexico, which saw the greatest spike in premiums at 38%, had the fourth-highest rate of traffic fatalities in 2021.1 Insurers grappling with the higher number and severity of resulting claims may be increasing rates in the state to cover the heightened risk of accidents.
Similarly, Nevada saw its fifth-deadliest year in driving-related fatalities in 2022, partly explaining its whopping 36% increase in car insurance premiums.2 Nevada drivers also pay some of the highest premiums in the country, at an average $2,568 a year – 54% higher than the national average.
New Jersey’s 34% increase in rates may be explained by its change in insurance requirements. A new law that took effect on Jan. 1, 2023, raised the minimum amount of liability coverage from $15,000 to $25,000 on new car insurance policies, explaining the rapid increase. Requirements for coverage per accident also increased from $30,000 to $50,000.
States with the most expensive car insurance in 2023
Insurers consider a number of factors when setting rates, including location. Insurance companies typically predict the frequency and severity of claims in a given area using a combination of population density, climate risk, and crime rate, among other factors. Michigan, New York, and Nevada have the highest annual car insurance rates in the first half of 2023.
Michigan still has the highest car insurance rates in the country. This is the third year in a row that Michigan has appeared in the No. 1 spot in Insurify’s report. Drivers in the state pay $2,766 for car insurance on average — 66% higher than the national rate.
Premiums have also increased 31% since 2022 and may continue to increase through the end of the year, as the Michigan Catastrophic Claims Association (MCCA), which manages the state’s catastrophic claims fund, increased fees for drivers on July 1, 2023.
New York, one of the most populated states in the U.S., has historically had higher car insurance rates, and 2023 is no exception. The Empire State’s annual average premium of $2,568 is 54% higher than the national average. Population can influence car insurance rates due to the greater chance of claims.
To better understand how high auto insurance prices are affecting consumers, Insurify’s data science team compared prices in the most expensive states to the percentage of household income spent on auto insurance.
Michigan drivers paid the highest percentage of household income for car insurance, at 4.4% on average. For comparison, Americans spent 6% of their household income on groceries and other food at home in 2021, according to the most recent U.S. Bureau of Labor Statistics Consumer Expenditures report.
How this affects drivers
Insurance industry disruptions are significantly affecting drivers in 2023, and policyholders are looking for more affordable options as premiums rise.
“Vehicle repair and maintenance costs have outpaced inflation and show no signs of slowing, leading insurers to increase auto insurance prices to keep up with the cost of higher claim payouts,” says Allie Feakins, Insurify’s SVP of insurance. “Given the lag between regulator approvals and actual rate increases, consumers can expect rates to increase over the next 12 to 18 months. It’s more important now than ever to comparison shop.”
51% fewer drivers are buying full-coverage insurance
In the first half of 2023, the number of drivers looking to buy full-coverage auto insurance dropped 51%, according to data from Insurify’s platform. Instead, the number of drivers looking to buy liability-only coverage increased 86%.
This data suggests that drivers are opting out of buying more coverage in order to save as car insurance costs rise.
A full-coverage policy provides more protection than the minimum liability coverage most states require drivers to carry. A full-coverage policy also costs about 62% more than the minimum liability coverage, with an average price of $2,064 compared to $1,272.
As more drivers drop coverages to get a cheaper policy, they become more exposed to out-of-pocket costs in the event of theft, vandalism, collisions, damage from falling objects, and damage from weather events.
Lenders and leasing companies often require comprehensive coverage, which is usually included with full-coverage policies. Drivers who are trying to save money on premiums could violate their leasing or financing terms by downgrading coverage.
Drivers are searching for answers to high car insurance costs
Drivers are feeling the financial strain of rising rates and are turning to Google for answers. Google Trends data, compiled in the graphic below, shows interest over time in the search term “car insurance cost.” Interest reached an all-time high in May 2022 with 22,200 searches and spiked again in March 2023 with 33,100 searches, according to Google Keyword Planner data.
Searches for “affordable car insurance” are also on the rise in 2023, with Mississippi, South Carolina, and Georgia residents showing the most interest in the term.
These trends suggest drivers are searching for cheaper car insurance options, potentially after seeing their rates increase dramatically with their policy renewal notices.
Some drivers will have fewer options
Higher insurance rates are driving policyholders to shop around, but certain drivers may have fewer options. Influenced by record losses and climate catastrophes, insurers are limiting operations in some states and exiting others, like Louisiana, Florida, and California, entirely.
As insurers struggle to remain profitable, companies will prioritize lower-risk drivers. Rates for drivers with an accident, ticket, or DUI on record will be significantly higher, and in some cases, insurers may refuse to provide coverage to high-risk drivers.
Insurance companies are grappling with profitability
Insurers experienced record-breaking losses in 2022, contributing to higher auto insurance rates in 2023. Inflation-related spikes in car repair and replacement costs, and damage from severe weather events, led to an increase in claims that had insurers struggling to stay profitable.
“Auto insurance rates across the U.S. are escalating for a number of reasons. Namely, current insurance rates are not keeping up with insurer losses,” says Mark Friedlander, director of communications for the Insurance Information Institute.
The property and casualty (P&C) insurance sector saw a net combined ratio of 111.8% in 2022. The combined ratio is calculated by dividing the amount a company pays in claims and other expenses by the amount it collects in premiums.
A combined ratio above 100% means the industry as a whole paid more in claims and expenses than it earned from premiums. State Farm, the biggest P&C insurer in the U.S., posted the largest losses with a net underwriting loss of $2.87 billion in the first quarter of 2023.
“There has been an increase in the frequency and severity of accidents, riskier driving behaviors like distracted driving, and injuries and fatalities on the road, which are, in turn, increasing the number of litigated claims for insurers,” Friedlander says. “These trends, combined with the increasing costs of replacement parts, rising labor expenses, and escalating medical costs for treating accident victims, are leading to higher costs for insurers, who are increasing rates to cover those costs.”
To accommodate the higher price of fulfilling claims, insurers will continue to increase rates.
U.S. auto insurance companies reported the worst underwriting results in more than two decades, according to a May 2023 S&P Global report. Below are the combined ratios for the top 20 insurers in 2021 and 2022. Any company with a combined ratio of more than 100% operated at a financial loss.
The price of auto body parts is surging, increasing insurance rates
The consumer price index (CPI) for motor vehicle maintenance and repair, which measures the average change of car maintenance and repairs over time, increased from 4.8% in January 2022 to 14.2% in January 2023, as shown below. Inflated prices directly affect insurance companies and policyholders.
“Consumers are paying more for auto repairs due to increased costs. With repair rates rising, people may put off car maintenance, which can lead to even more damage and higher expenses,” says Emile Ashikyan, marketing analyst at the data technology company InfoPay.
“Repair expenditures also raise the financial risk for the insurer. To counterbalance these rising expenditures, auto insurance premiums often rise, increasing consumers’ insurance prices,” explains Ashikyan. “This may strain household budgets and make car ownership unaffordable for some.”
“It’s not just the cost of parts, but the time it takes to get them,” says Betsy Stella, VP of carrier management and operations at Insurify. “Supply chain disruptions mean vehicles are stored at repair facilities for longer, and garages are charging storage fees. Because of repair lag times, consumers are using their replacement car coverage more often, meaning insurers are paying more in claims.”
Key factors contributing to the increase in car repair costs include:
- Higher steel, aluminum, and rubber prices driven by global demand, supply chain interruptions, and trade regulations
- Increased research and development for automotive technology, like autonomous driving, which raises expenses for car manufacturers
- Stricter government regulations for pollution, safety, and fuel economy, as well as the increased manufacturing costs to stay compliant
- Supply chain disruptions and material shortages influenced by natural disasters, the COVID-19 pandemic, and trade conflicts
In the face of skyrocketing repair costs, drivers should look for reliable, low-maintenance models and check the vehicle history of any car they purchase. Regularly checking recalls can also help drivers save on car maintenance since the manufacturer typically pays for recall repairs.
The impact of climate change on auto insurance
As climate change continues to severely affect homeowners insurance premiums, it’s now also affecting the auto insurance industry.
Severe weather events and associated losses have led several insurers to leave certain markets, like California and Florida — two states with high proportions of counties classified as having “relatively high” and “very high” risks of natural disasters.
“The frequency and severity of natural disasters have led to some geographical areas experiencing different types of weather events from what they’ve seen before,” says Stella.
“More vehicles are being caught and destroyed in fires and floods, and ice is sticking around longer, increasing the likelihood of collisions. This has led to auto insurers paying a higher number of — and a higher price for — customer claims. As a result, customers are seeing higher premiums as insurers increase prices to cover these losses.”
Last year, 18 climate disasters each caused damage costing at least $1 billion. Damages from 2022 natural disasters totaled $165.1 billion, according to the NOAA National Centers for Environmental Information (NCEI).
Florida and South Carolina, which were in the top 10 most expensive states for car insurance, both experienced costly natural disasters in 2022. Hurricane Ian, which ripped through Florida, caused between $50 billion and $65 billion in insured damages, making it the costliest natural disaster since Hurricane Katrina.
When weather events like wildfires and hurricanes occur in an area, insurers typically experience a high number of claims for vehicle damage. When that number of claims crosses a catastrophic threshold, reinsurance companies typically step in to cover the remaining claims. However, insurance companies are now running into issues with reinsurance, leading to them pulling out of high-risk markets.
“Faced with an unpredictable market, reinsurance companies are opting not to share in the risk of the auto insurance market as a whole,” Stella says.
Car insurance companies are pulling out of major markets
Drivers in California and Florida face limited insurance options as major companies continue halting and reducing coverage in these states.
California’s insurance crisis
California is experiencing an insurance crisis influenced by climate change and state legislation. The state’s robust consumer protection laws mean California drivers still pay $1,518 annually — nearly 10% less than the national average. However, rates are up 16% in the state in the first half of 2023, and drivers are seeing fewer options for coverage.
Policyholders in California will continue seeing rate hikes in 2023. After blocking rate increases for more than two years due to COVID-19, regulators approved 6.9% increases for Allstate, Progressive, GEICO, Mercury, and State Farm.
The cost of providing coverage in California is still too high for some insurers. GEICO has closed all its California offices, and Progressive has pulled advertising in the state. Insurance giants Allstate and State Farm stopped selling homeowners, condo, and commercial policies, citing wildfire risks. With the rising cost of car repairs, auto insurance could soon follow.
Prop 103’s impact on the California insurance industry
The primary legislation regulating California’s insurance industry is Proposition 103. The legislation:
- Requires approval by the California Department of Insurance for rate hikes
- Prohibits insurers from using certain factors (e.g., ZIP codes) to set rates
- Entitles safe drivers to a 20% discount on auto insurance premiums
- Eliminates rate increases for drivers who aren’t at fault in an accident
- Protects customers from arbitrary cancellations and non-renewals
- Stops insurers from charging penalties for a driver’s previously uninsured status
- Allows policyholders to negotiate group discounts and lower broker sales commissions
- Enables any member of the public to challenge an insurer’s rate increase
- Gives policyholders the right to sue insurers for Prop 103 violations
The consumer-friendly law keeps California rates low. But with insurers leaving the state, in part due to inflation outpacing rate increases, residents could find themselves with limited insurance options.
Florida’s insurance crisis
Florida drivers pay an average of $2,412 annually — a 25% increase since 2022. The state’s residents face an auto and homeowners insurance crisis, leaving them with dwindling coverage options.
In July 2023, Farmers Insurance stopped writing homeowners and auto insurance policies in Florida, affecting 100,000 policyholders. In addition, numerous Florida insurers have also been declared insolvent since the beginning of 2022, including:
- Southern Fidelity Insurance Co.
- FedNat Insurance Co.
- Weston Property and Casualty Insurance Co.
- Lighthouse Property Insurance Corp.
- Avatar Property & Casualty Insurance Co.
- Johns Insurance Co.
To date, the insurance crisis and insolvencies have mostly affected homeowners, but the Farmers Insurance exodus could indicate a worrying trend for Florida drivers.
How HB 837 impacts Florida drivers
Florida is a no-fault state and requires personal injury protection (PIP) coverage. With PIP, drivers file injury claims with their own insurance companies, regardless of who caused the accident. Drivers also sue their own insurers if they believe a claim was wrongfully denied or underpaid.
Insurance companies say PIP legislation leaves them vulnerable to frivolous lawsuits and fraud. In an effort to reduce financial strain on the insurance industry, Gov. Ron DeSantis signed HB 837 into law on March 24, 2023.
HB 837 has the following impact on Florida drivers and insurers:
- The end of one-way attorney fees: Previously, policyholders who sued insurers were entitled to attorney fees if they received any amount of recovery. HB 837 ended the one-way attorney fees. Plaintiffs are now responsible for their own legal costs.
- Modified comparative negligence: Under Florida’s new law, plaintiffs who are at least 50% at fault for an accident can’t recover damages.
- Capped medical coverage rates: Medical coverage caps at 1.7 times the Medicaid rate, which is less than what some specialists, like spinal surgeons, charge. Even if a plaintiff is awarded coverage in a lawsuit against the insurance company, capped rates could leave policyholders with higher out-of-pocket medical bills.
- Negligence alone doesn’t equal bad faith: Mere negligence or a mistake by insurers doesn’t equate to “bad faith” under the new law, protecting insurance companies from lawsuits for minor errors in the claims adjustment process.
The impact of climate change on Florida’s insurance industry
Severe weather is straining Florida’s insurance industry. Insurers face a backlog of lawsuits and damage from Hurricane Ian and similar natural disasters. Insurance companies could become increasingly wary of offering coverage in the state as the frequency and severity of climate catastrophes increase.
Close to 33% of Florida counties are at a “relatively high” or “very high” climate risk, according to FEMA. Florida’s most populous county, Miami-Dade, is in the “very high” risk category.6 Insurers increase premiums in areas with high climate risk to cover damage from hurricanes, severe thunderstorms, and other natural disasters.