Here Are The Key Reasons Why Car Insurance Costs Have Exploded
Much like everything else, the cost of car insurance has risen dramatically since the pandemic. According to the Bureau of Labor Statistics, national car insurance rates have increased by up to 55% since 2020, bringing the average annual cost for full coverage to just over $2,200. For better or worse, inflation isn't the sole reason why insurance costs have exploded over the past few years. Rather, there are a multitude of reasons why the cost to insure your vehicle has skyrocketed.
Insurers underpriced policies
During the 2020 pandemic, insurance companies deliberately underpriced policy premiums, expecting less driving and fewer accidents. That prediction proved to be correct as lockdowns reduced traffic volume. Since fewer claims were coming in, insurers issued refunds and applied discounts, and politicians pressured companies to keep rates low as economic hardship swept the nation.
As restrictions eased, however, roadways and driving behavior changed faster than insurance companies had anticipated. Occurrences of speeding, reckless driving, and severe crashes increased as drivers returned to the road. As it turns out, underpriced policies were just the beginning of the economic storm that made landfall in the following years.
Car prices soared
New car prices soared over the past five years, peaking at just over $50,300 in December 2025, according to Kelley Blue Book. In 2021, the average new-vehicle transaction price rang in at a little over $43,300, a 14% increase in just five years. Used cars prices have also surged since the pandemic, peaking at a 39% increase in August 2022 compared to January 2021. While they've come down a tad since then, used cars can still carry some sticker shock, making replacement price a prime reason insurance rates have skyrocketed over the past few years.
Repair costs skyrocketed
It's obvious that modern cars are better equipped in terms of technology than ever before. Cameras, sensors, radar systems, and other electronics are a constant in every single vehicle of the past decade. Unfortunately, those electronic components cost a pretty penny to replace. Even so much as a minor fender bender can require recalibrating driver-assistive systems.
The price of your standard vehicle repair has risen dramatically on its own, too. According to Cars.com, the average cost to repair and maintain a car has risen from $290 in January 2019 to $419 in January 2025. Not only that, but climate-related claims have been on the rise as well. Not all areas receive the same extreme weather, though. While the west sees more wildfires, the Gulf and Atlantic coasts are more prone to hurricanes and flooding. As a result, insurers are putting more scrutiny on policy pricing and spreading their risk across the region.
Anecdotally, my 2022 Chevy Blazer RS was bumped in the school dropoff line last fall. While there wasn't a mark on it, I did get a maintenance light that needed to be checked out. When all was said and done, the other driver's insurance paid just over $1,200 to replace several clips and reset the driver-assistive safety system.
Medical and legal costs increased
While collision insurance is crucial for every driver, especially with the price of vehicle repairs and replacements, liability is equally as necessary. Healthcare costs have risen across the board, and if you're found liable for a collision, your insurer may have to foot the bill for the other driver's medical bills. According to Health Affairs, the cost of healthcare increased by 4.1% in 2021, 4.8% in 2022, 7.4% in 2023, and 7.2% in 2024. As a result, insurance premiums increased to keep pace to cover the cost of liability.
On the legal side of the equation, the costs of defending and settling personal injury lawsuits have surged over the last decade. As anyone who has ever had to hire a lawyer knows, lawsuits tend to get extremely expensive over a very short period of time. Drawn out litigation can easily hit six-figure legal bills, and if you're in an accident, your insurance is on the hook to defend you. Not only that, but some drivers are persistent in turning a minor accident into a major payday.
How to save money on car insurance
There are many factors that go into determining your car insurance premiums, but in general, prices are falling little by little. According to Insurify, insurance prices fell by around 6% in 2025, but that wasn't the case for every state. Wyoming, Iowa, and Arkansas saw the largest drops, while premiums were on the rise in New Jersey and Rhode Island, among others.
Per the Insurance Information Institute, several factors that influence your car insurance premium include your driving record, vehicle, amount of coverage, and your deductible. Your age plays a role as well. Younger drivers have more accidents on average, and your insurance will often decrease once you turn 25. You also have a credit-based insurance score that helps insurance companies determine how likely you care to file a claim.
Money is tight for many Americans, and saving money on car insurance can go a long way. To reduce the price of your car insurance, it's important to shop around to find an insurer that takes the time to talk to you and answer any questions you may have. After all, they're the ones you have to deal with if you need to file a claim. You can also raise your deductible to significantly lower your premium costs, and many insurers will offer a discount if you bundle with another type of coverage, like homeowners. If you're in the market for a new vehicle, make sure to check out what it will cost to insure before you buy.
Not all insurance companies offer the same discounts. Some may offer a low-mileage discount, while others give a break to policyholders without accidents. Taking a defensive driving course can help lower your rate with some insurers as well. If you have a young driver who has taken driver's education or is away at college without a car, you could also qualify for a lower car insurance premium. Make sure to ask your insurance company if they have any in-house discounts you may qualify for, too.
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This story was originally published May 26, 2026 at 5:30 AM.