Car insurance is falling back in line

Economists are busy hunting for signs of tariff-induced price hikes in the monthly inflation data. They may be overlooking some good news, which is that a surge in the cost of car insurance is finally abating.

The cost of owning a car has soared during the last few years, with drivers absorbing hits from all angles. The average cost of a new car is now $49,000, and Trump’s tariffs will likely push that well above $50,000. As new cars get costlier, so do used cars. Fancy new technology and other factors, meanwhile, have raised the cost of parts, repairs, and maintenance.

But the biggest jump has been in the cost of insurance, up 60% during the last five years, to an average monthly premium of about $213. A bill that was once an afterthought now totals nearly $3,000 per year, and a lot more for some vehicles and drivers.

Read more: The cheapest car insurance in the US in 2025

Relief is on the horizon. In April 2024, the annual rate of car insurance inflation peaked at 23%. It’s now at a much tamer 5.3%, and the lower annual price hikes are likely to stick.

Insurance is different from most other products and services people buy. Drivers buy insurance only once or twice per year, with the monthly premium set for the duration of the policy. Insurers set premiums based on car-pricing data that also has a lag. They must also deal with regulators who may resist premium hikes that are too steep.

The recent surge in car insurance premiums dates to the first days of the COVID pandemic in 2020. Supply chain disruptions, such as a lack of semiconductors, sent new car prices higher, with used car prices soaring as buyers priced out of the new market shopped used. That means the replacement cost of a vehicle totaled in a wreck went way up.

All the digital technology on new cars, such as cameras, sensors, and processors, raises the cost of repairs, as well. At the same time, global warming is causing more severe weather that leaves more cars destroyed in floods and storms. And for reasons researchers don’t fully understand, crashes have been getting more severe.

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All of those factors push insurers’ costs higher, with the industry as a whole enduring several years of net underwriting losses on autos. So insurers have been raising their own prices to get back in the black. That simply takes time, since they can only change their prices once or twice per year. And in some cases, regulators force them to spread premium hikes over several years to spare consumers too much pain all at once.