The cost of an average auto insurance policy will increase by 22% in 2024, and residents of some states could see the cost of coverage increase by 50% or more, according to Insurify. And it is at the top of an average increase of 24% in 2023.

However, there is good reason to believe that drivers will finally start to see costs stabilize in 2025. Here’s why and where I predict car insurance rates will head next year.

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Why has car insurance increased so much in recent years?

Although this has been a painful time for many auto insurance customers, it’s not because insurance companies have banded together and simply decided to raise prices. There are legitimate reasons behind the rise in auto insurance, including the following.

Inflation

The United States has just experienced its highest inflation in 40 years, and this has hit the auto industry particularly hard. In the two-year period from 2020 to 2022 alone, the average cost of a new vehicle in the United States increased by 19%.

Repair costs

Not only has inflation made it more expensive to purchase parts to repair, but wage growth has also made the labor costs of repairs more expensive. The cost of renting a car when repairing a vehicle has also increased. In total, it is estimated that the cost of vehicle repairs will increase by 17% in 2023. alone.

Dispute

In recent years, more and more people are choosing to use lawyers for accident claims, which has led to higher average settlement costs for insurers.

Weather events

There have been more weather-related events in recent years, especially those that cause significant damage to vehicles. For example, hail-related claims increased from 9% of all comprehensive claims in 2020 to almost 12% last year.

It may seem strange that inflation was highest in the 2022-2023 period, when we are still seeing large increases. Insurance premium increases are often delayed because they must be approved by each state’s insurance department. For this reason, cost increases seen by your insurer may not be reflected in the cost of your policy for a year or more.

Could costs start to stabilize in 2025?

Although there is no way to know for sure, there is some reason to believe that auto insurance could stabilize in 2025. I just mentioned that changes in auto insurance often reflect events occurred about a year ago. With this in mind, consider the following:

• Although the average sales price of new vehicles jumped 19% between 2020 and 2022, it only increased about 4% in the two years since. In fact, some experts predict the average selling price of new vehicles will increase autumn slightly in 2025.
• After a few difficult years in terms of profitability, Fitch Ratings says that auto insurers will be in a much better financial position in 2024 (and therefore there will be less need to sharply increase premiums).

Certainly, I don’t expect car insurance costs to decrease in 2025, or for that matter in the near future. But I predict we will see premiums increase at an annual rate of 5-6%, which is consistent with historical averages. In other words, I would expect a more normal year for the auto insurance industry than we’ve had recently.

The essentials

No one has a crystal ball that can predict car insurance rates. After all, few experts thought at the start of 2023 that we would experience an increase of more than 50% in just two years. However, after two rather painful years for car insurance customers, although I don’t expect rates to increase lowerI think we are finally getting closer to stabilizing premiums.