The Skyrocketing Cost of Driving: Auto Insurance Premiums on the Rise
Over the past two years, Americans have witnessed a significant surge in auto insurance costs. Nationally, premiums have jumped by an average of 27%, an increase from approximately $127 per month in 2022 to $161 by the end of 2023. This rate of increase far surpasses the overall inflation rate of 12% during the same period, placing a considerable strain on household budgets.
This financial burden impacts all drivers, but is felt most acutely by those who rely on their vehicles for essential activities like work, grocery shopping, and transporting children to school.
Key Factors Driving Up Auto Insurance Rates
Several interconnected factors contribute to this rise in auto insurance rates:
- Increasing Vehicle Thefts: A sharp increase in vehicle thefts across the country is a primary driver. The National Insurance Crime Bureau reported over 1 million auto thefts in 2023, a level not seen since 2007.
- Lenient Criminal Justice Policies: A perceived shift towards lenient policies by some district attorneys contributes to the problem. This perceived leniency may embolden criminals, leading to increased theft and damage, which insurance companies must cover.
- Burdening Regulatory Policies: Government regulations can affect insurance companies, and some policies may limit the ability of insurers to adjust rates to reflect risk accurately.
- Broader Impact of Inflation: Inflation impacts the cost of everything in the car industry, from new and used vehicles to repair costs.
The Impact of Vehicle Thefts
The rise in vehicle thefts is particularly alarming. For instance, Washington, D.C., experienced a staggering 64% increase in vehicle thefts in 2023. Consequently, insurance rates in the nation’s capital rose by 30% between 2022 to 2023. Nevada saw an 18% increase in motor vehicle theft, and insurance rates climbed 35% in the Silver State. Faced with growing losses caused by theft, insurance companies must raise premiums to cover the rising costs.
Controversial Legal Approaches
Some district attorneys are facing criticism for their approach to crime. For example, the District of Columbia’s Attorney General, Brian Schwalb, has stated that the District cannot “prosecute or arrest our way” out of surging crime, and has declined to prosecute minors arrested for carjacking. This is viewed by some as contributing to the problem. Meanwhile, Schwalb has decided to focus his efforts on cracking down on the supposed “health hazards” of gas stoves.
California: An Outlier in the National Landscape
California’s auto insurance market presents a different scenario. Despite cities like Los Angeles and San Francisco reporting high numbers of automobile thefts, with more than 70,000 and 40,000 annually, respectively, auto insurance prices have increased only 13% since 2022. The state’s regulations prevent insurers from adequately adjusting rates, leading to financial losses and causing some insurance companies to leave the state entirely.
Since October 2023, at least six insurance companies have left California. The largest departure is Tokio Marine Co. which wrote almost a trillion dollars in auto insurance premiums across the U.S. last year. Other major brands like Geico have scaled back or closed operations in California due to profitability concerns—Geico closed all of its California offices in 2022. Progressive has stopped advertising there, and State Farm now only offers quotes in person. As companies recoup their financial losses through higher prices in safer areas, consumers in other states are forced to subsidize the companies still operating in California.
The Role of Government Regulations
Government regulations may also be contributing to the problem. The Biden administration’s new regulations are expected to increase vehicle prices, potentially exacerbating insurance issues. The Department of Transportation announced new vehicle efficiency requirements that are expected to raise future car prices. Additionally, the Environmental Protection Agency requires that 70% of all passenger cars sold by 2032 must be all-electric or plug-in hybrid. Because more expensive cars typically command higher premiums, these regulations may further inflate premiums.
Broader Economic Pressures
From 2021 to 2022, new vehicle prices rose 13%, while used car prices soared 40%. Although prices have cooled from all-time highs recently, consumers continue to feel the financial strain. Moreover, rising manufacturing costs for automobiles are leading to higher vehicle prices. As vehicle prices, repair costs, and insurance claim costs increase, premiums will inevitably catch up to cover those expenses.
Addressing the Crisis
These rising costs put a severe financial strain on middle- and working-class Americans. Policymakers must act to stabilize the auto insurance market and bring prices down. Enforcing the rule of law and removing price control measures that contribute to market instability are essential first steps. By enacting crime and regulatory policy reforms, policymakers can help to stabilize the market and reduce the financial burden.
