What's driving higher auto insurance costs

Car insurance prices have surged by over 19% year-over-year, according to the Bureau of Labor Statistics, putting additional financial pressure on drivers. To help navigate this landscape, Bankrate Analyst Shannon Martin joins Wealth! to share advice on how to shop for car insurance and save money.

Martin identifies several factors contributing to the rise in insurance costs post-pandemic, including extreme weather risks, a rise in car crash incidents, and higher motor vehicle repair costs as key drivers of the price surge. While she encourages individuals to shop around for the best rates, Martin cautions that "you might not save as much now as you would in the past few years."

"My best advice for anyone who's even thinking about purchasing a car is start with your insurance budget first," she tells Yahoo Finance. She recommends obtaining VIN numbers from different dealerships and getting quotes from insurance agents about the exact car you want before purchasing.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Angel Smith

Video Transcript

Prices for car insurance increased over 19% compared to last year.

According to the Bureau of Labor Statistics, and nearly half of consumers are actively shopping around for a new plan according to AJ D Power study to discuss how you might be able to save some cash.

We've got Shannon Martin Bank rate analyst here with us, Shannon.

Great to see you here.

A lot of people looking to ease some of those costs.

But what is the reality as of right now within this market for car insurance right now, the reality is that people are struggling to make their car insurance payments, things have gotten really expensive.

You do wanna do what you can to shop around and compare rates but keep in mind you might not save as much now as you would have in the past few years.

What is the biggest input that's driving prices for, for car insurance higher right now?

Is it wages?

Is it, is it getting the actual parts and equipment?

Uh because there's a few things that are inputs into the overall expense basis for a lot of the servicing that needs to take place in the insurance business.

That's absolutely right.

Um, right now, the cost of motor vehicle repair is about 45% higher now than it was before the pandemic.

So that is a real significant driver in the cost of car insurance.

You also have to look at extreme weather.

Um, there's just a lot of factors that happen.

There was also a 10% increase in car crash fatalities that occurred in 2021.

Now, the car crashes are still higher, fatality rates are still higher now than they were before.

But they have started to come down recently by a little over 3%.

You know, it's particularly interesting as we think about insurance claims and you mentioned some of the events that are driving more of these claims to come through.

Ha has there been a major delta or a major change in the approval process for claims and how much people are actually getting paid out?

What's really interesting is with the cost of parts and labor being so much higher, um, policyholders are now actually having their vehicles totaled at a sooner rate than they were before.

So there is not necessarily a different uh change in how claims are being paid, but because the value of the vehicle might fall below how much it costs to repair the vehicle, now, you might not be able to keep your vehicle, it might end up being totaled.

Um, and you will receive a claim check that you need to put towards purchasing a new vehicle.

How is insurance cost playing into the mindset of those who are trying to weigh the decision of whether or not to purchase an electric vehicle, even electric vehicles currently are still priced higher than your standard vehicle.

So that is something that most, you know, drivers and policyholders should keep in mind my best advice for anyone who's even thinking about purchasing a car is start with your insurance budget first, get full numbers from different dealerships, get quotes from agents so that you know what car falls within your insurance budget before you head down to the dealership.

In terms of the data that is taken in by so many vehicles, electric or standard combustion engine vehicles or internal combustion engine vehicles, I should say uh there's more data than ever before because of the technology that's integrated into vehicles.

How can drivers also make sure that they're leveraging that data to get better rates on their insurance?

You know, all of us are still fairly nervous about how much data insurance companies collect from our driving habits.

Um Many drivers are looking into taking advantage of telematic discounts um but they do collect data on not not only where necessarily, where you're driving, but what time of night that you're driving um your brake patterns.

So I would speak with your agent, make sure you're comfortable with the level of data they're acquiring and you, some people are also looking at low mileage plans where if you're driving less than 4000 miles a year, you might save money because you aren't driving too much.

But those insurance companies are collecting that data as well.