Rates for auto insurance are rarely, if ever, constant; instead, they change based on a variety of factors and conditions. According to Bankrate’s detailed research, the average cost of auto insurance will likely climb for many drivers in 2022. In numerous jurisdictions, rate increases by several major vehicle insurers, including Allstate, Progressive, Geico, and State Farm, went into effect in late 2021 or early 2022. Since November 2021, Allstate and its companies have had 20 rate hikes approved in 13 states. According to S&P Global Market Intelligence, the rate hikes reported by the corporations surveyed range from roughly 3% to just under 12%.
Because car insurance is typically a required expense, premium increases can be surprising and financially challenging, especially for drivers who already pay higher-than-average rates due to insuring teens, having accidents or tickets on their records, or living in a high cost-of-living area. Bankrate explains why rates are likely to increase for many drivers, shows you how to prepare for a potential rate hike and lays out strategies you can use to help offset these increases.
Will auto insurance rates go up in 2022?
According to Steve Ellis, an Assistant Vice President and Claims Field Manager at Liberty Mutual,
“the overall cost of doing business is increasing for practically all companies in the U.S., including insurance companies. And because the ‘cost of doing business’ is part of the calculation of premiums, consumers can expect, in general, higher premiums in 2022.”
A number of economic and societal influences are behind these potential rate increases, including inflation, supply chain disruptions and changes in driving habits.
Keep in mind, however, that charges are very individualized. Your premium is determined by criteria like as the type of vehicle you drive, your driving and claims history, and the types and levels of coverage you select. “Even if you don’t file a claim, a rise in the volume or expense of claims from other drivers can enhance vehicle insurance rates for all consumers in your city or state,” says Mark Friedlander, Director of Corporate Communications at the Insurance Information Institute (Triple-I). While we estimate that vehicle insurance premiums will rise in general in 2022, the amount of increase you will receive (if any) will be dependent on your specific circumstances.
Why are insurance rates Increasing?
Car insurance rates are calculated based on a number of underlying factors. Individually, your age (in all states except Hawaii), gender (in most states), driving history, vehicle type and coverage choices impact your premium. Additionally, broader factors also impact rates, such as if states pass revised insurance laws, the likelihood of claims occurring in certain areas or if vehicle repair costs increase.
Perhaps the biggest driver of higher 2022 car insurance premiums is inflation. Between December 2020 and December 2021, the Consumer Price Index (CPI) rose 7.0%. This means that, on average, we are spending 7.0% more than we were a year ago for the same goods and services.
Inflation pounded the new and used vehicle markets in 2021. The price for new cars and trucks rose by 11.8% between December 2020 and December 2021, while the used car and truck market saw a 37.3% increase. Vehicles are also much more complex than they used to be, which adds to the overall cost of ownership. Even small accidents can cause hundreds or thousands of dollars worth of damage to delicate electronics that require specialized repairs.
Vehicle costs aren’t the only thing struck by inflation. The cost of healthcare is also on the rise. The American Medical Association reports that healthcare spending increased 4.6% in 2019, the most recent year with available data. This means that when someone is injured in a car accident, the resulting medical costs are greater than what they were in previous years.
Because car insurance is designed to pay for the costs after an accident — including both property damage and medical costs — anything that makes these costs more expensive is likely to raise rates. Insurers need to make sure they have enough funds to pay claims, so when inflation hits, car insurance rates are affected.
Supply chain disruptions
The last few years have created a perfect storm to disrupt supply chains. COVID-19 shutdowns caused decreasing demand in certain industries in 2020. With fewer people on the road and cars generally getting less use, there was a decrease in the need for vehicle parts. Then, an ice storm in February 2021 knocked out plants and factories across the South, the Suez Canal was blocked for six days in March 2021 and people began to return to a more normal level of driving, which caused increased demand but decreased supply. The auto industry has been one of the hardest-hit sectors. “Parts are more expensive, labor is more expensive and repair costs overall are more expensive,” Ellis says.
Perhaps the most evident of these vehicle-related supply chain disruptions was the difficulty in obtaining semiconductors. Semiconductors, often called “chips,” are used in a wide array of vehicle applications, including driver assistance systems, entertainment systems and electronic mechanisms. In December 2021, over 50 business leaders — including executives from American Honda Company, Ford Motor Company, General Motors and Toyota Motor North America — sent a letter to Congress urging the governing bodies to encourage the U.S. to create its own semiconductor research, design and production methods, to increase the supply of semiconductors and available jobs.
Along with supply chain issues making parts harder to find, labor shortages have made skilled workers harder to find as well. The Bureau of Labor Statistics reports that unemployment is at 3.9% as of December 2021 — sharply down from the April 2020 peak of 14.7%, but not yet back to pre-pandemic levels of 3.5%. The “Great Resignation” has also pushed workers to reconsider their career paths, with many labor shortages caused not by unemployment but by workers switching jobs.
Fewer workers can contribute to rising insurance costs. When fewer people do any given job, including vehicle repair and healthcare jobs, pay rates often increase as an incentive. For example, maybe a mechanic used to repair bumpers for $100. Now, that same mechanic is working longer days and taking less time off to make up for a reduced workforce. To compensate, the mechanic now charges $300 to cover the same repair. Because the repair costs more, insurance companies may increase rates to prepare for higher claims expenses.
Changing driving habits
As we hunkered down at the start of the COVID-19 pandemic in early 2020, the country saw an unprecedented reduction in driving levels. Many households stopped commuting to work, school and activities. Streets were quieter and accidents were fewer. As a result, many insurance companies refunded some premiums to policyholders.
However, Friedlander points out that
“In 2021, we saw a return to pre-pandemic driving patterns which led to a significant increase in auto insurance claims and accident severity. In fact, the National Highway Traffic Safety Administration reported an 18.4% increase in fatal crashes during the first six months of 2021 compared to the first six months of 2020 — the highest percentage increase on record.”
This pendulum swing of driving habits may have insurance carriers needing to rebuild their claim reserves — the money set aside and earmarked for paying losses — which means higher premiums.
Are all auto insurance policies affected?
The premium increases you see on your own policy will depend on a number of factors, including the state you live in, your driving history and the type of vehicle you own. However, one of the most important factors when considering rate increases is your coverage level.
Rate increases can impact your policy regardless of coverage types and levels, but each factor impacts your premium differently. For example, the factors that increase vehicle costs, like inflation and supply chain issues, are likely to increase the cost of your property damage liability and collision coverage because these coverage types deal with paying for vehicle damage. However, rising medical costs could affect the cost of your bodily injury liability coverage and medical payments or personal injury protection (PIP) coverage. Each part of an auto policy is priced separately and thus affected by different impacts of rate increases.
Minimum coverage policies only include the coverage types and levels that are required by your state. Because these coverage limits offer very little financial protection, they generally cost less than a policy with higher limits or full coverage. This means that rate increases might not seem as drastic on minimum coverage policies compared to policyholders with higher limits.
Is it possible to avoid increased insurance costs?
Bracing for a rate increase may seem stressful, but having the knowledge that your auto premium could go up can help you prepare and act quickly.
1. Review your current Policy: The first step in prepping for a premium change is understanding your current insurance policy. Reviewing your policy and knowing your coverage types, limits, discounts and premium can help you learn about your policy. If you aren’t sure how to analyze your policy, you might want to talk to an agent. Be on the lookout for your policy’s effective dates and see if your next renewal is available. If so, check the premium on that policy to see how your rate will be affected in 2022.
2. Shop for a new carrier: Friedlander says that “Comparison shopping is essential to obtain the best cost for the amount of coverage that fits your needs.” If you get your policy renewal and see that your premium has increased, you may want to first contact your car insurance company to see if you might be able to adjust your policy or add extra discounts to lower rates. For example, if you’re still driving less in 2022 than you were in previous years, could you earn an annual mileage discount? If you can’t offset your premium increase, you might want to shop around. While most car insurance companies sell the same types of coverage, each company also has its own underwriting rules, discounts, rating algorithm and policy features. Getting quotes from a few carriers might help you find a lower rate and a policy that fits your needs. You may even earn an early shopper discount if you switch in advance of your next renewal.
3. Take advantage of discounts: Discounts can be one of the easiest ways to lower your premium. Reviewing your current discounts might help you identify areas where you could save. If you’re shopping for new coverage, you could look for a company that has several discounts that might be available to you.
4. Check your other Policies: Don’t forget about your other insurance policies if you have them. Even if you can’t offset your auto insurance increase, you may be able to find savings on your homeowners insurance or renters insurance policy. Reviewing your entire insurance portfolio is a good way to make sure you are properly insured but not overpaying for coverage.
Will auto insurance prices go back down?
Car insurance rates rarely, if ever, remain the same from year to year. Even if your rate increases substantially, insurance experts and financial advisors agree that you should keep your car insurance policy in force. You may be able to work with an agent to develop a strategy to lower your premium to a more acceptable level.
While we expect rates to rise broadly in 2022, we expect premiums to fall in the future as inflation falls and supply chain difficulties are resolved. Individual rates fluctuate depending on your specific circumstances, so you may experience a decrease in your rate during a year when most drivers see rises. This could be due to fewer incidents in your area the previous year, or it could be because a ticket or accident “fell off” your driving record. Understanding your policy and staying aware of your coverage needs will help you make sure you have the correct protection for your lifestyle and budget.