According to recent research, American vehicle owners are grappling with the most significant surge in auto insurance rates in the past five decades, prompting certain car manufacturers to reduce prices to maintain competitiveness. A new report from S&P Global Market Intelligence reveals that all of the top 10 private auto insurers raised their rates by double digits in 2023, following substantial increases in 2022. Over the past two years, the average insurance payment for American drivers has surged by nearly 27%.
Tim Zawacki, principal insurance analyst at S&P Global Market Intelligence, notes that this level of rate increase hasn’t been observed since the mid-1970s, highlighting the unprecedented nature of the current situation. The escalating costs of insurance, coupled with increasing financing and maintenance expenses, have made buying and insuring a car more expensive than ever. This poses challenges for both consumers and struggling auto manufacturers relying on increased demand to revive a sluggish market.
While insurance rates remained relatively stable from 2018 to 2021, experiencing only a 0.3% nationwide increase, drivers in Texas, where the largest insurance-rate hike occurred, are facing rates 45.5% higher than two years ago. Fifteen states have witnessed average rate increases of 30% or more since 2022.
The surge in insurance premiums is just one aspect of the overall financial burden of car ownership, as nearly all associated expenses have surged in the past year. AAA reports that financing costs for new car buyers nearly doubled from 2022 to 2023, while the Consumer Price Index found a 7.1% increase in auto maintenance costs from a year ago. Although gas prices have somewhat decreased from their mid-2022 peak, they remain higher than pre-pandemic levels.
Adding to the challenges, the resale value of vehicles has significantly dropped in the past year, with new vehicles losing an average of over $4,500 a year in 2023, up 24% from the previous year, according to AAA research. Electric vehicles (EVs) are contributing to this trend, as a recent AutoTrader report revealed that new EVs lose half of their value in just three years.
This financial strain is impacting not only consumers but also auto manufacturers, who are facing softened demand and industry cutbacks after years of robust spending on EVs. Automakers are responding by lowering prices on new cars to stay competitive, as reflected in a recent Cox Automotive report that shows a decrease in new vehicle transaction prices for three consecutive months in the latter half of 2023.
As high ownership costs persist, including rising insurance rates, analysts anticipate continued challenges for the entire auto industry in the coming years.
