Why Are Car Insurance Rates Rising? Here’s How to Save in 2025

by Justin Fischer | Last updated Dec 14, 2024 | Finance & Insurance, Insurance

Car insurance premiums are surging at an unprecedented rate, and it’s hitting wallets hard. Over the past year, auto insurance costs have risen by 13%, following a nearly 51% increase since late 2019. According to a recent report from the Washington Post, this surge has become a major driver of overall inflation, complicating efforts to stabilize the economy. But why are car insurance rates climbing so sharply, and what can drivers do about it? Let’s break it down.

Why Are Car Insurance Rates Rising?

1. Expensive Repairs and Costly Cars

Car prices have been on the rise for years, with automakers prioritizing high-end models over budget-minded offerings. Today’s vehicles aren’t just more expensive; they’re also loaded with advanced driver assistance and safety features. While these features make vehicles safer, they also drive up repair costs. Replacing sensors, cameras, and other high-tech components is far pricier than traditional repairs that drivers are accustomed to. Additionally, labor costs in the auto repair industry have soared, further inflating the price of repairs that insurance companies must cover.

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2. Increased Accident Frequency and Severity

Distracted and reckless driving is leading to more accidents, injuries, and fatalities. According to data from the National Highway Traffic Safety Administration, distracted driving claims over 3,000 lives in the U.S. each year. Distracted driving results in more accidents, and as a result, more insurance claims. This uptick in claims drives up costs for insurance providers, who pass those expenses on to consumers. Attorney involvement in claims is also on the rise, adding to the rising costs of resolving insurance claims.

3. Uninsured Drivers Are Adding to the Problem

The rate of uninsured motorists has grown from 11.6% in 2019 to 14% in 2022, according to the Insurance Research Council. As more drivers go without insurance, insurers must spread the risk among their paying customers, driving premiums higher for everyone else.

According to data from ValuePenguin and Lending Tree, there are five states where more than 20% of drivers are uninsured: Mississippi (29%), Michigan (25%), Tennessee (24%), Florida (23%), and Washington (21%). 

How Insurance Rates Are Impacting Inflation

Car insurance premiums are not just a personal financial burden—they’re influencing national economic trends. In November 2024, rising auto insurance costs accounted for 15% of the increase in overall consumer prices. Without the spike in premiums, inflation would have been significantly lower, according to economists cited by the Washington Post.

Federal Reserve Chair Jerome Powell has acknowledged that insurance costs are one of the “stickiest” contributors to lingering inflation, making it harder to achieve the Fed’s 2% inflation goal.

Will Car Insurance Rates Go Down?

There is some hope for relief. As auto prices stabilize, insurance premiums may follow. November’s CPI data showed only a 0.1% monthly increase in auto insurance costs, hinting at a potential plateau. However, economists warn that factors like potential tariffs on car parts from Canada and Mexico could reignite price hikes.

Additionally, as more drivers forgo insurance, premiums for insured drivers may remain elevated or even rise further. Without systemic changes, drivers should brace for a long road ahead when it comes to high insurance costs.

What Can Drivers Do to Save?

While systemic factors are driving insurance rates, there are steps you can take to lower your costs:

1. Shop Around: Two out of three drivers who shop around find a better rate. Compare rates from multiple providers with CarEdge in minutes. 
2. Bundle Policies: Combine home and auto insurance to access discounts. Before you switch insurance providers for a slightly lower rate, make sure that you wouldn’t be losing any bundling discounts. 
3. Maintain a Clean Record: Avoid accidents and tickets, as they can significantly raise your premiums.
4. Consider Higher Deductibles: If you’re confident in your driving and live in a region with a low number of uninsured drivers, increasing your deductible could lower your monthly costs.
5. Reevaluate Coverage: For older vehicles, dropping comprehensive and collision coverage may save money. If you do this, it’s important to understand the risks of not having auto insurance, such as much higher repair costs in the event of an accident. 

Stay Informed, Compare Quotes Often, and Stay Alert For Savings

Soaring car insurance premiums are putting a strain on household budgets and driving inflation higher. While there may be hope for auto insurance rates stabilizing in the future, drivers should take proactive steps to mitigate rising costs. Compare quotes from multiple insurers to see if you have the best rate. It’s free, and can’t hurt.  

Stay informed about market trends, and use tools like CarEdge’s insurance calculator to ensure you’re not overpaying. Buying a car soon? It’s smart to estimate car insurance costs before you buy to avoid unpleasant surprises. 

As the insurance landscape continues to evolve, being prepared is your best defense against skyrocketing rates.