Car insurance is a growing burden for Kalisa Hobbs.
Hobbs has been swept up in a larger trend affecting hundreds of thousands of American drivers: soaring car insurance rates, with some states seeing increases as high as 40 percent in the past year.
Premiums have kept climbing even as other types of inflation have cooled. According to the Bureau of Labor Statistics, car insurance for U.S. drivers in July was 16 percent more expensive than in July 2022, and 70 percent more expensive than in 2013.
“Car repair costs, body shop wages, and used car prices have all had significant increases,” said Frank Palmer, chief insurance officer at Root Insurance. “The entire industry has had to raise rates to keep up with these trends.”
Motor vehicle maintenance costs, for example, are up 13 percent from July of last year, according to the Bureau of Labor Statistics.
“It’s more expensive to diagnose newer vehicles,” said David Woodall, a mechanic at Metro Motor in Washington, D.C. “The parts aren’t a whole lot more expensive, but the frequency of repair on them is more than it used to be. If an air bag goes off, that’s thousands of dollars — a new car might have eight air bags in it.”
But the rate hikes are also an attempt by insurers to make up for big payouts driven by floods and natural disasters, which insurers categorize as “catastrophe losses.” States prone to climate disasters have seen some of the steepest auto-rate hikes.
In Colorado, car insurance premiums have increased 52 percent since last July as blizzards, tornadoes and hailstorms have led to an increased number of claims throughout the state. And in Florida, premiums have increased 88 percent since 2013 as insurers scramble to make up losses from hurricane-linked flood damage claims.
“Regular people are being priced out of the state,” says Inger Berg, a resident of Pensacola, Fla. She says Allstate recently hiked the policy on her Volkswagen Jetta by $85 a month.
The hikes follow a tough year for many insurers.
In 2022, State Farm reported $13.4 billion of underwriting loss in its auto insurance department. Allstate, which reported a $678 million loss in that sector in the first half of 2023, increased its auto insurance rates by 9.3 percent across 15 locations in May to make up for the losses, Allstate chief financial officer Jess Merten said last month.
State agencies have largely gone along with these hikes, executives said.
“We’re going to maximum file rates everywhere we can, and we’re not getting as much pushback from regulators because the numbers are pretty clear,” Allstate chief executive Tom Wilson said during the company’s most recent earnings call. “Like, it’s not like we’re making it up.”
No escape from higher premiums
Rising rates especially hurt those who rely on their vehicles to get to work or manage family life, experts said, with many drivers seeing their budgets stretched to the brink.
Car insurance is required by law, ― “just another part of adulting,” as Hobbs put it ― and rates can go up or down based on factors that are out of any individual’s control, even with a clean driving record.
A driver’s auto bill can increase simply because of where they live, or because repair services they haven’t used are becoming more expensive.
That’s what happened to Hobbs when State Farm hiked her annual premium by $400. She was in one accident but didn’t file a claim because it wasn’t her fault, she said. She was told it was part of a statewide increase this year.
State Farm spokesman Justin Tomczak did not address Hobbs’ account specifically, but said car insurance premiums in Louisiana are expected to increase by about 17.7 percent in 2023, for both new and existing customers. Higher premiums in Louisiana and elsewhere are driven by inflationary pressures, supply chain issues and higher claim costs, he said.
“We continue to adjust to these trends to make sure we are matching price to risk,” Tomczak said in an email.
Although auto insurance rates in Louisiana actually fell 6 percent in 2022, the state’s average premium of $2,546 remains the second-highest behind Florida’s. Hobbs pays less than that, but she feels the sting of every increase in her total insurance bill, which she estimated at more than $22,000 a year across multiple providers for all forms of coverage, including property, medical and life insurance.
Consumer advocates point out that the auto insurance industry had a record year in 2020, when fewer cars were on the road but the rates were priced in from the previous year.
No matter how much control regulators have, insurers are allowed to set profitable rates, said David Forte, a policy adviser for the Washington State Office of the Insurance Commissioner. Even in states with strict oversight, such as California and Washington, Forte said, insurers are allowed to price in an estimated profit of about 5 percent.
Meanwhile, states with looser regulations are finding new ways to control costs. Last year, in Georgia, the state’s insurance commissioner said he was “angry and disappointed” in Allstate for raising rates 40 percent. In May, Gov. Brian Kemp passed a law that gave state insurance regulators more control over prices.
But regulators have to tread a fine line between controlling costs and driving away insurers. Some insurance companies are abandoning parts of the Southeast, leaving drivers with few options. Farmers Insurance recently suspended new policies in California, Louisiana and Florida, for example.
“There’s one thing worse than rising rate hikes,” Georgia deputy insurance commissioner Steve Manders told The Washington Post. “And that’s not having coverage at all.”
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In southern Mississippi, student Andrew “AC” Bledsoe has been driving for Uber in the summer months, when his graduate stipend to study lighting and sound design isn’t paying the bills. In early 2022 he signed up with Root Insurance Company, which tracks policyholders through a cellphone app and promises cheaper rates for safe drivers.
Bledsoe said he was led to believe that good driving behavior would keep monthly insurance premiums low, but his rates kept climbing even though he retained a driver safety rating of eight out of ten. His six-month insurance rate climbed from around $1,150 to nearly $1,800 ― growing larger than his car payment and not far from his monthly share of rent.
“It sounded like a great deal because I take pride in staying safe on the road,” Bledsoe said in an email.
“But,” he said later in an interview. “It wasn’t in my budget for the price to go up.”
Root’s Palmer said the company recognized industrywide loss trends sooner than other insurers. He predicted that other competitors “will continue to take rate increases going forward” and said he sees Root’s good-driver discount as “still a useful tool to bring insurance costs down for good drivers.”
But it’s not useful enough, in Bledsoe’s view. He’s switching to State Farm, which he says offered him a cheaper rate.
Hitting low-income drivers hard
The higher costs of car insurance are being passed down to the country’s most financially vulnerable drivers, economists and consumer advocates say.
Lower and middle-income households are already squeezed by the rising cost of shelter, KPMG chief economist Diane Swonk said, and car ownership is yet another cost that harms them disproportionately.
Federal rules allow insurers to consider socioeconomic factors when setting rates, leading to the worst increases being borne by the people least able to afford them, said Doug Heller, director of insurance at the Consumer Federation of America.
“If you have a blue-collar job, or if you only have a high school degree, a number of companies will charge you more than if you’re a white-collar professional,” Heller said. “Everybody’s facing rate hikes, but a greater share is borne by lower income drivers.”
Families also often face a heavier financial burden, especially when all adults in a household, along with teenage children, need transportation to work. And recent immigrants can suffer a financial penalty if insurers won’t accept their out-of-country driving experience.
Refugee families living in the United States, for example, have increasingly been downgrading from multiple cars to just one, said Jon Vosper, an executive at the aid organization International Rescue Committee. Those refugees are struggling with higher premiums which, along with rent, make it harder to live in America’s car-centric suburban areas, according to Fred Rabin, a financial education specialist with IRC in San Diego.
Rabin recalls one client, an Afghan refugee, who was quoted at nearly $550 per month because the insurance company wouldn’t count his previous driving experience. But Rabin says his clients have no choice.
“A car here is a need, not a want,” Rabin said. “If you don’t have a car, you can’t work, you can’t afford expenses.”
Some drivers are downgrading to “liability-only” policies that fulfill legal requirements but otherwise offer little, if any, coverage, Vosper said.
Driving without insurance is illegal and can lead to the suspension of a driver’s license — or even jail time in some states — but some drivers are taking the risk and dropping insurance altogether. A 2023 Policy Genius survey of nearly 3,000 drivers ages 17 to 34 found that in the past year, 17 percent of them opted to drive uninsured.
But Louisiana resident Hobbs doesn’t see that as an option. She’s sticking with State Farm for now despite her rate increase, assuming other providers would charge her similarly.
“I sucked it up and paid it, because what can I do?” she said. “I have to have insurance on my car.”
Amy Nakamura contributed to this report.