Why Auto Insurance Rates Have Increased Since 2020
By: Financial Hotline
Spring 2025 (Vol. 43, No. 1)
Since 2020, drivers across the U.S. have been feeling the sting of rising auto insurance premiums.
While the early days of the pandemic saw temporary drops in rates due to reduced driving, the years that followed brought a sharp and sustained increase. So what’s driving these higher costs? The reasons are complex and interconnected, but here are the key factors behind the upward trend.
1. More Accidents and Riskier Driving Behavior When lockdowns ended and roads got busy again, many insurance companies noticed a troubling trend: more severe accidents. Speeding, distracted driving, and impaired driving all surged after 2020. With more accidents—especially costly ones involving injuries or total losses—insurance companies have had to pay out more in claims, which leads to higher premiums for everyone.
2. Skyrocketing Vehicle Repair and Replacement Costs The cost to repair or replace a vehicle has jumped dramatically since 2020. Supply chain disruptions, a global chip shortage, and inflation drove up prices for both auto parts and labor. Even a minor fender bender now costs significantly more to fix. And if a vehicle is totaled, replacement costs are higher due to inflated new and used car prices.
3. Medical Cost Inflation Auto insurance doesn’t just cover vehicles—it also pays for injuries. The cost of medical care has been rising steadily, and post-pandemic inflation has accelerated those increases. Everything from emergency room visits to physical therapy is more expensive than it was just a few years ago, and those costs are passed on to policyholders.
4. Litigation and Legal Expenses There has been a rise in legal claims and lawsuits related to car accidents, especially those involving bodily injury. Settlements and jury awards have become more expensive, and insurers have to factor in the cost of legal defense as well. This increased litigation pressure is another driver behind rising premiums.
5. Extreme Weather Events Severe weather has also played a role. Hurricanes, floods, hailstorms, and wildfires have damaged countless vehicles in recent years. These events have become more frequent and costly, particularly in states like Florida, California, and Texas. As insurers pay out billions in weather-related claims, they adjust their pricing models accordingly.
6. Labor Shortages in the Insurance Industry Just like other sectors, the insurance industry has faced staffing shortages post-2020. Underwriting, claims processing, and customer service have all been affected, leading to delays and inefficiencies. These operational challenges can increase overall costs, which may also be reflected in rising premiums.
7. Pandemic-Era Disruptions and Long-Term Market Adjustments During 2020, many insurers offered rebates or reduced rates because people were driving less. However, as driving patterns normalized and risks returned—often worse than before—insurers had to correct those underpriced policies. Some are still recalibrating, especially after significant financial losses in 2021 and 2022.
What Can Drivers Do?
While it’s difficult to avoid rising rates entirely, drivers can take steps to limit their costs:
- Shop around and compare quotes from different insurers
- Bundle policies (auto, home, renters) for discounts
- Maintain a clean driving record
- Consider usage-based insurance programs that reward safe driving
- Raise deductibles to lower premiums (with caution)
Auto insurance rates are expected to remain elevated for the foreseeable future, but understanding the causes helps drivers make smarter decisions and find savings where they can.