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Americans have been hit hard for the past few years by skyrocketing costs of car insurance. In fact, car insurance premiums have gone up by about 37% in the past four years (as of January 2024). Many drivers are feeling big sticker shock and price pressure -- not just from the cost of buying and maintaining their vehicles, but from the cost of car insurance.
But according to Rick Gorvett, a professor of Mathematics and Actuarial Science at Bryant University, drivers have good reason to be optimistic about the direction of car insurance prices.
We talked with Professor Gorvett to get his top insights and predictions on future auto insurance price trends. Let's see why drivers can feel hopeful today -- and why more drivers should price shop for car insurance quotes.
1. Auto insurance prices are slowing down in 2024
The past few years have seen big increases in average car insurance premiums. The average annual car insurance cost went from $2,640 in 2021 to $3,017 in 2023 -- a 14% increase over two years. Professor Gorvett believes this trend is starting to head in the opposite direction.
"Compared with the substantial premium increases we have seen over the last year or two, I believe that the price of auto insurance is likely to stabilize in the near future," Professor Gorvett said. "In the last two months, the auto insurance component of the Consumer Price Index has risen about 0.80%, which corresponds to approximately 5% per year."
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If the average person's auto insurance premium only goes up by about 5% in 2024, that would be a big relief for many people's household budgets. Professor Gorvett points out that just a few months ago, Consumer Price Index data was suggesting there would be a 20% annual increase in car insurance costs. Even if most drivers haven't noticed it yet, prices of auto insurance might be coming down fast in 2024.
2. Auto insurance prices might get back to "normal" in 2024 and 2025
When car insurance rates go up so fast, it can be alarming to many drivers. It's easy to think that the costs will keep skyrocketing forever. But Professor Gorvett says that if you look at a long-term perspective of the auto insurance industry, the past few years' big price hikes are unusual -- and unlikely to last.
"Believe it or not, looked at from a long-term perspective, current auto insurance premium levels
now seem to be back on a historical trend line," Professor Gorvett said. "Prior to 2017 and 2018, premiums tended to increase at a 5% to 6% annual rate."
A big reason for today's high auto insurance rates is that people drove significantly less during the COVID-19 pandemic in 2020–21 -- and that meant lower risks, lower costs, and (temporarily) lower car insurance premiums for drivers. Remember in 2020 when auto insurance companies were sending checks to their customers? I actually got money back from my car insurance company in 2020.
But after lockdowns ended and people started driving again (and unfortunately, getting in car crashes more often), car insurance companies' costs went up -- and they had to raise rates to adjust to the new normal.
"This explains the spikes in premiums during the last couple of years," Professor Gorvett said. "Now, we're essentially back to rate levels that would have prevailed if rates had continued to increase at 5% to 6% per year, and my impression is that insurers are by and large more satisfied with rate adequacy."
3. Auto insurance prices could get cheaper for some drivers
Drivers might be feeling gouged and exhausted by high price hikes for car insurance. But economic laws of supply and demand might soon help the car insurance market balance out.
"Typically, insurance rates don't get excessively high or low relative to expected losses," Professor Gorvett said. "Supply-demand forces tend to moderate 'extreme' rates."
Car insurance prices have gone up a lot recently. But that doesn't mean they'll keep getting more expensive forever. Often in the world of financial markets, what goes up, must come down. The market for auto insurance is highly competitive, with many car insurance companies and insurtech companies working hard to attract new customers. If car insurance companies' price hikes get too far out of line with what people are willing to pay, they'll have to lower prices.
Drivers who feel as if their current car insurance company's prices have gotten too high should shop around for price quotes. Other companies might make a better offer. Different insurance companies might rate the same drivers as lower-risk and deserving of cheaper car insurance.
Bottom line
The car insurance market has gotten a bit hectic and unpredictable in the past few years of price hikes, but it's likely to calm down soon -- and that might already be happening for many drivers. Recent inflation data suggests that car insurance prices could be returning to more affordable levels.
Drivers have options: Shop around for price quotes for cheaper car insurance , consider changing their deductibles and coverages, or try a telematics safe-driver discount insurance program.
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy .
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