If you recently got an expensive car insurance bill, you’re not alone.
Car insurance costs rose about 15 percent in March compared to a year earlier, well above the latest headline inflation reading of 5 percent. The average annual premium is about $2,000, according to personal finance website Bankrate.
Car insurance rates are expected to continue to rise. This week, the CEO of Progressive Insurance said in a letter to shareholders that the company plans to be “serious about raising interest rates through the remainder of the year.” Allstate said it expects to pursue additional increases in 2023 to “improve the profitability of auto insurance.”
Industry analysts say higher costs for repairs, including auto parts and labor, along with higher car rental costs as a scarcity of workers leads to longer repair times, all contribute to more expensive claims and higher premiums. “Everything related to reform is getting better,” said Stephen Crewdson, senior director of insurance business intelligence at consumer research firm J.D. Power.
As the pandemic subsides, more drivers are back on the roads, whether for work or leisure travel, increasing the risk of accidents, said Robert Passmore, vice president of personal lines with the American Property Accident Insurance Association, an industry group. He added that bad habits acquired during the pandemic, such as driving at higher speeds, lingered.
Many good drivers are penalized with rates based on factors unrelated to their driving, said Doug Heller, director of insurance for the Consumers Federation of America. In most states, you may pay higher premiums if you have poor to fair credit, even if you have an original driving record. Insurance companies use a variety of consumer credit scores—similar to those used by lenders to determine a borrower’s risk of repayment—as one of several factors to assess a driver’s likelihood of filing an insurance claim.
A recent report from the Consumer Federation of America on insurance premiums in New York found that drivers with perfect driving records and excellent credit pay an average of $730 per year for basic insurance, while drivers with the same driving history but bad credit average about $2,100. . The union supports eliminating the use of credit rating in insurance rating, saying it particularly harms low-income customers and people who live in minority neighborhoods. (At least three states—California, Hawaii, and Massachusetts—prohibit the use of credit rating in determining these premiums, and a few others limit its use.)
Insurance companies advocate offering better rates to drivers with good credit, saying it makes sense because those customers are less likely to file insurance claims. “The vast majority of customers get a better rate because we use a credit rating system,” said Mr. Passmore.
Car insurance is hard to avoid because basic coverage is mandatory in most states. So what can you do to lower your bill? Chuck Bell, director of advocacy programs at Consumer Reports, recommends researching three or four quotes from different insurance companies to see if they can offer lower rates. Many consumers stay with the same insurance company for decades, he said, but it’s smart to check rates from time to time. “We think you should shop yearly,” he said.
While many people would “prefer to get a root canal,” he said, getting auto insurance quotes isn’t difficult. He suggests calling insurance companies on the phone, but you can also get direct quotes on insurance company websites. (Sites that aggregate the information can give you a general idea, he said. But for specific quotes, it’s best to deal directly with insurance companies or independent agents who represent several carriers.) Have your current policy on hand so you can easily compare coverage. .
In fact, higher premiums are driving drivers to shop around for lower fares, according to recent findings from JD Power. “They are actively looking for a better deal,” Mr. Crewdson said.
The share of households shopping for auto insurance in the previous month averaged 13% in March, the highest rate since mid-2021, according to JD Power, whose findings are based on daily online surveys of up to 1,000 consumers. The average switching rate — households that changed insurers in the previous month — rose above 4 percent in March, compared to an average of 3.6 percent for all of 2022 and 3.4 percent for 2021.
If you’re looking to buy a car, you can help keep insurance costs low right from the start when you buy the car, by focusing on the least expensive models to insure, Mr. Bell said. Instead of a large pickup truck or SUV, consider crossovers, he said, which are less expensive to insure.
If your car is an older model with a lower value, you can lower your premium by reducing collision coverage, which pays to repair or replace your car when it’s damaged in an accident with another car or something like a fence, and comprehensive coverage, which covers theft of your car and damage caused by Things like twigs falling on it.
Insurance companies also offer usage-based insurance, which involves having a device in your car that monitors your mileage and driving habits. Then the insurance company will include the data in your premium. If you are a safe driver and comfortable sharing data with your insurance company, or if you drive less than that, you can benefit. “It’s a way to save some people money,” Mr. Bell said.
Here are some questions and answers about how to lower your car insurance premiums:
Does improving my credit score help?
Raising your credit score may help lower your premium. Paying your bills on time and avoiding maxing out your credit cards — keeping what the credit bureaus call “utilization” low — can help boost your score. You should also limit the number of new credit card accounts you open and the loans you take out. You can check your credit report for accuracy for free by visiting www.annualcreditreport.com.
Some insurers don’t use credit scoring in setting premiums—CURE Auto Insurance, for example, says they don’t—so it’s worth asking when you’re shopping for coverage.
Can an increased deductible lower my premium?
Yes. Choosing a higher deductible — the portion of the bill for the claim you’re responsible for, before the insurance policy pays off — can lower your premium. Mr. Bell said going from a $500 deductible to a $1,000 deductible can save an average of about 10 percent on your premium. If you can, put the savings on your premium to help pay your withholding, if you have to file a claim.
Where can I find information about insurance companies in my state?
State insurance departments may have information to help you compare rates and service levels of different insurance companies. Texas, for example, has a detailed tool for getting quotes, and Massachusetts offers a spreadsheet to help with comparisons. The National Association of Insurance Commissioners provides a map of state insurance departments, and maintains a complaints index that consumers can use to see if their insurance company is above or below average.