Higher prices on auto repairs and medical treatments increase what auto insurance companies pay to settle claims. Insurance providers often don’t absorb those increases – they pass them on to you as higher auto insurance premiums.
Find out what claim-related costs are becoming more expensive, why these trends are affecting your insurance rates, and what you can do to keep auto insurance affordable.
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Inflation is the gradual increase in prices in an economy. It is often analyzed as a single percentage that represents how much prices have increased over the past year. But price increases are never uniform across categories. Some costs increase faster than others.
In recent years, car accident costs have been among the fastest rising expenses. Several trends have contributed to this, including the following.
Modern vehicles are more complex and require more expensive parts. Jae E. Lee, founder and managing partner of personal injury firm Jay Lee Law, noted that even minor damage to newer model cars can lead to costly repairs.
Labor’s share of repair costs is also increasing, due to the continued shortage of qualified mechanics. Ford CEO Jim Farley recently said the automaker is having trouble filling 5,000 mechanic positions, even though those positions pay nearly twice the median wage in the United States.
When used cars reach higher prices, auto insurance companies must fund larger total loss payouts. The Manheim Used Vehicle Value Index, considered a leading indicator of used car inflation, soared in 2021 and has remained elevated since.
The automotive industry has been plagued by supply chain problems for years. Evolving trade regulations and tariffs, as well as geopolitical risks, are factors. Longer parts receipt times mean higher rental vehicle reimbursements for auto insurers.
Bodily injury claims cover medical expenses resulting from car accidents. In 2016, the average personal injury claim was $16,082. Eight years later, the average had increased by 75.8%, while the average property damage liability claims increased by 70.6%. Rising medical costs and evolving litigation practices have contributed to this. According to Michael Arrigo, an expert witness with experience in healthcare claims cases, older legal precedents and the use of medical billing liens and letters of protection in personal injury cases can “artificially inflate the ‘reasonable value’ of medical bills presented at trial or mediation.”
According to data from the Bureau of Labor Statistics (BLS), the cost of auto insurance rose more than twice as fast as overall inflation between 2020 and 2025. As you can see in the comparison below, auto insurance inflation outpaced overall inflation most dramatically in 2022, 2023, and 2024.
ZIP code is an important factor in insurers’ risk assessment, but it is not the only indicator of risk, explained Jeffrey Nadrich, founder and managing attorney of Nadrich Accident Injury Lawyers.
Other drivers with defects on their applications could also see huge increases in premiums. But Nadrich believes low-income drivers in urban areas may feel the most pressure when insurance premiums rise.
“When inflation causes premiums to increase, these low-income drivers have fewer options to reduce costs without sacrificing important coverage,” Nadrich said.
“(Urban drivers) face higher base insurance rates based solely on their ZIP code, regardless of how clean their driving record may be,” Nadrich explained.
Urban drivers also face a higher risk of theft and vandalism. Your premiums will be set to cover inflated used car values and increased parts and labor costs.
Drivers with fines and accidents.
Drivers with recent accidents or tickets on their driving records will pay insurance rates that reflect generally higher claim costs.
More information: How much does car insurance increase after an accident??
Electric vehicle owners will see higher premiums related to the complexity and high cost of vehicle repairs.
Drivers in California, Florida, Texas, Louisiana and other high-risk areas for extreme weather could pay more as auto insurance companies reassess the impact of extreme weather on the frequency and cost of auto claims.
“Insurers know that rate increases alone are not sustainable,” said Jeremy Jawish, CEO of insurance technology company Shift Technology. That’s one reason, Jawish explained, insurance companies are focusing their attention on “operational efficiency and loss control.”
Strategies under this umbrella include:
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Invest in technology to detect fraud, automate simpler claims, and identify high-risk claims faster.
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Stricter underwriting practices They are becoming common as insurance companies use technology and data to improve the way they identify and price risk.
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Exit high-risk markets: When regulatory caps on rates limit premium increases, insurance companies may decide to leave the state entirely. For example, several large insurance companies have left the California auto insurance market in recent years.
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Promotion of usage-based insurance: “Insurers are trying to tie premiums to each driver’s specific behaviors on the road rather than simply increasing their premiums across the board,” Lee said. Usage-based insurance provides the driving data needed to make those individualized risk assessments.
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You can’t control inflation, but you can take steps to manage your auto insurance premiums. Try these strategies to ensure you get the lowest rates available:
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Drive safely: Avoiding fines and accidents is often the safest way to avoid big increases in car insurance.
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Compare prices on each policy renewal: Collecting quotes before each policy renewal is the easiest way to confirm you are paying a competitive rate.
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Increase your deductible: Higher deductibles on comprehensive and collision insurance translate into lower premiums. This strategy only makes sense if you have enough cash savings available to cover the higher deductible.
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Package Policies: Buying your auto and homeowner or renters insurance from the same company can save you 10% or more.
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Ask about discounts: Ask current and potential insurance companies how to maximize your discounts. If it’s practical, quote policies for different mileage levels and then adjust your driving habits to match.
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Consider usage-based insurance: If you drive conservatively, consider trying usage-based insurance. Your safe driving habits could offset other risk signs on your application.
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Eliminate unnecessary coverage on older cars: You may not need collision and comprehensive insurance on your older vehicles. Consider the value of the car in relation to the cost of coverage and your deductible.
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Improve your credit: Most states allow insurance companies to evaluate your credit report when making pricing decisions. In those states, a better credit score could mean a lower insurance bill.
More information: Auto insurance rates are going up. Here are 4 reasons why and 11 ways to save.
According to four experts, auto insurance rates will continue to rise in 2026, but probably not to the levels experienced in 2023 and 2024. This group predicted moderate to low single-digit increases for the year.
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Craig Martin, executive managing director of JD Power’s Global Insurance Intelligence team, expects to see “stable or potentially moderate increases in auto premiums in 2026.”
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Jenna Bailey, founder and senior trial attorney at Bailey Law Firm, predicted persistent upward pressure on rates with slow increases, not increasing ones.
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Lee anticipates statewide insurance premium increases of 1% and 4%, with the possibility of larger increases once insurers assess the impact of tariffs on auto parts.
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Zander Cook, CRO at lease buyout firm Lease End, noted that “insurers are still underwriting losses from previous years, meaning rate increases are likely to continue or, at best, remain stable.”
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Inflation and other factors have raised auto insurance rates. Fortunately, rate increases may be slowing in the near term as insurers find other ways to control costs and mitigate losses. Still, driving safely, comparing prices, and adjusting coverage can help you manage the rate increases you’ve already absorbed and stay ahead of new ones coming your way.
Tim Manni Edited this article.