Motor vehicle insurance covering damage, liability, and other risks is required for all drivers, across the US, with a few exceptions.[1]
Costs for this driver necessity been climbing since 2020, in part due to inflation driving up repair and part costs; between June 2023 and 2024, the price of personal motor vehicle insurance rose 19.5%.
Additionally, motor vehicle insurers may be raising the cost of insurance due to rising repair costs and lower returns from insurers’ bonds.
How much have insurance rates gone up?
Insurance costs are rising faster than general inflation. The May 2024 Consumer Price Index data indicated that the motor vehicle insurance index — the change in insurance cost over time — was approximately 2.7 times higher than the nationwide inflation rate.
- What is the motor vehicle insurance index? This index tracks the changes in the cost of motor vehicle insurance over time. It considers the costs of physical damage, liability, and miscellaneous insurance coverage for private passenger vehicles.
- What is the US inflation rate index? This is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services — including the relative costs of a home, food, gas, and other commonly purchased items. The Federal Reserve aims to keep inflation around 2% to balance employment rates and price stability.
From 2020 to 2024, insurance rates rose by about 54%.
Why are car insurance rates rising?
Several factors influence the cost of car insurance[2]:
- Age and gender: Younger drivers, particularly men under 25, face higher rates due to a higher risk of accidents. Rates then stabilize as drivers age until rising for seniors as accident risks increase again.
- Marital status: Married people are statistically less likely to be in accidents, so they often receive lower rates than singles.
- Vehicle type: High-performance and luxury vehicles generally incur higher premiums because they’re pricey to repair and are often targets for theft.
- Location: Urban areas with higher traffic volumes and crime rates tend to have higher insurance rates while rural or less densely populated areas might see lower rates.
- Driving patterns: The more miles driven, the higher the risk — and the insurance premium.
- Driving record: A higher risk profile — history of accidents, traffic violations, or insurance claims — can significantly increase premiums.
- Credit history: People with lower scores are typically offered higher premiums due to their perceived financial instability.
Broader economic and regulatory environments also shape auto insurance rates.
According to the Congressional Research Service, rising inflation has increased repair and part costs, directly affecting premiums. The inflation spikes in 2021 (7%) and 2022 (6.5%) led to higher prices for building materials and auto repairs, directly influencing insurance rates.
Fluctuations in interest rates also impact insurers' investment returns, crucial for their profitability and pricing strategies.
When the Federal Reserve spiked interest rates in 2022, there was a notable decrease in the value of insurers' bond investments, impacting their overall financial stability.
With less income from insurer’ bonds and higher overall repair costs, insurance companies might raise the price of existing policies to offset this loss in revenue.
State-specific regulations can affect rates. Complex regulatory frameworks can delay or moderate rate increases, whereas states with more flexible regulatory environments allow insurers to adjust rates swiftly in response to market changes.
These factors collectively shape the complex dynamics of insurance pricing, balancing consumer protection and market stability.
Where does this data come from?
This data was pulled from the BLS, tracking the nationwideinflation rate and the motor vehicle insurance rate. Supplemental sources from from state government pages explaining car insurance regulatory laws and standards, as well as a Congressional Research Service report on the factors influencing the high cost of insurance for consumers.
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[1] State laws on motor vehicle insurance vary. For example, certain vehicles, like mopeds, state or publicly owned vehicles, do not require liability insurance to register. However, most drivers in the US need vehicle liability insurance.
[2] The following factors come from a Washington State consumer guide to auto insurance, but reflect factors that impact auto insurance rates across the country.
