Car Insurance Surges In CA: Here's Why, And What You Can Do

CALIFORNIA — Surging automobile insurance costs in California and elsewhere around the country contributed to a hotter November annual inflation rate of 2.73 percent, according to the Labor Department’s latest Consumer Price Index report.

Together, insurance for autos, homes and medical care accounted for 15 percent of the increase in the Consumer Price Index, but the double-digit increases in auto premiums were largely responsible, according to economists.

Car owners in California pay an average annual auto insurance premium of $2,835 for full coverage—$235 per month—which is 15 percent more than the national average, according to an analysis by Bankrate, a personal finance website.

Bankrate's research also found that drivers in Los Angeles pay an average rate for full coverage insurance of $3,885, which is 37 percent more than the state average. Another contributor to high insurance costs is when California parents add a 16-year-old driver to their full coverage auto insurance policy, they can expect an average premium of $6,605 per year. For drivers with a DUI, the average annual cost is $6,990, a whopping 147 percent more than the state average.

Compared to other Western states, Californians pay more than residents of Arizona ($2,766), Washington ($1,724), Oregon ($1,994), Idaho ($1,370) and Utah ($2,141) but less than Nevada ($3,194) — one of the five states with the highest premiums.

Joining Nevada at the top were Florida ($4,088), New York ($3,846), Louisiana ($3,744) and Missouri ($3,236), according to the Bankrate analysis.

According to the Bureau of Labor Statistics, most of the surge in auto insurance premiums in the past two decades occurred in the last two years. Car insurance costs rose 80 percent between January 2004 and January 2022 but by 172 percent over 20 years.

Auto insurance is mandatory in all states but New Hampshire. Analysts say that requirement can have a significant effect on inflation.

Josh Hirt, a senior economist at Vanguard, told The Washington Post that November inflation would have been closer to 2.37 percent if not for the soaring cost of auto insurance.

“It is punching well above its weight for that contribution,” he said.

Federal Reserve Chair Jerome Powell told senators in March that soaring insurance costs have been “a significant source of inflation” over the past few years, complicating the Feds' efforts to tame it.

16.6% Of Calfornia Drivers Are Uninsured

There is no single reason behind the surging auto insurance costs. The rising cost of new cars and repair costs as automakers focus more on high-end models may be factors, according to industry analysts.

“It’s a mosaic of factors that impact auto insurance costs,” Scott Shapiro, who leads KPMG’s US insurance division, told CNN earlier this year. “While there is a general correlation between the price of the vehicle and insurance as it relates to physical damage, there are other factors beyond the price of the car that impact premium costs.”

An increase in the number and severity of accidents has led to claims above historic dollar amount averages, according to the CNN report, which cited data from LexisNexis Risk Solutions.

An increase in the number of people who don’t have insurance is also driving higher premiums, The Wall Street Journal reported, citing the latest available data from the Insurance Research Council that showed 14 percent of drivers—1 in 7—were uninsured in 2022. It has likely climbed since then. Data is calculated on the relative frequency of auto insurance claims, which have likely climbed since then.

J.D. Power bases its research on consumer surveys and noted an increase in the number of people driving without insurance. For some, it’s because there’s no room in the budget as other types of insurance and basic living costs increase. Others seem willing to take the risk they won’t need insurance.

“I wish that people understood that it really places them at risk,” John Mesirow, a personal-injury lawyer in Washington, D.C., told The Wall Street Journal. “But if you have to choose between paying rent and getting food and car insurance, it’s obvious what you’re going to pay for.”

Dale Porfilio, the Insurance Research Council’s president and chief insurance officer at the Insurance Information Institute, told The Journal that the short-term financial benefits of dropping coverage outweigh the potential legal risks.

“They’re having to make tough economic decisions about how they’re going to manage the money that they do have,” Porfilio said. “Sometimes they do make that choice to not purchase insurance.”

In California, an estimated 16.6 percent of other drivers don’t have insurance, according to a recent analysis by Value Penguin, another personal finance website, and Lending Tree, an online lender.

The study showed great variance by state. At an estimated 29.4 percent, Mississippi had the greatest share of drivers who don’t have insurance, followed by Michigan (25.5 percent), Tennessee (23.7 percent), Washington (21.7 percent) and New Mexico (21.8 percent).

At the other end of the spectrum, New Jersey has the lowest percentage of uninsured drivers of any state, at an estimated 3.1 percent. Other states with low uninsured driver rates are Massachusetts (3.5 percent), New York (4.1 percent), Maine (4.9 percent) and Wyoming (5.8 percent).

What Can Consumers Do?

Consumers can save money by shopping around for a better deal.

“We often, I think, are suckered into the belief that if we have to change insurance, we might lose our so-called ‘loyalty discount,’” Doug Heller, director of insurance for the Consumer Federation of America, told NPR earlier this year. “Or we’ve bought this insurance but we’ve never had a claim, so we feel like the insurance company wins if we don’t stick with them.”

In reality, the opposite is true, Heller said, adding, “The insurance company wins if we do stick with them and don’t shop around.”

Some long-term policyholders are among 42 percent of auto insurance customers who at least thought about switching carriers in the last 12 months, mirroring a trend among people looking for better rates for homeowners’ insurance, data from LexisNexis Risk Solutions showed.

Before making a switch, compare policies with the same coverage and deductibles. For most auto owners, “it’s kind of a plain vanilla product,” Heller said.