MINNESOTA, USA — Inflation has been one of the biggest buzzwords lately, so it should come as no surprise to anyone that auto insurance is becoming more expensive.
However, there are several additional reasons besides inflation that have caused auto insurance premiums to increase by nearly 14%, according to a new study from Bankrate.
The average American driver is now paying $2,014 a year on car insurance, up from $1,771 in 2022.
In Minnesota, the number is a little lower at $1,760.
However, Bankrate says once the cost of living is taken into account, Minnesota has the sixth-highest rate in the nation.
“We’re seeing premiums spike,” Mark Kulda says.
Kulda is the vice president of public affairs at the Insurance Federation of Minnesota.
He says these higher rates can be traced back to the beginning of the pandemic.
“During the pandemic, when the roads were empty, people were driving a lot faster, and now even though we have more cars on the road, they haven't slowed down. So the biggest thing is, we're seeing a lot more claims costs with crashes and crash intensity."
Kulda says we're also seeing higher prices at the body shop with expensive parts and higher labor costs.
Plus, there's often a wait time to get into the body shop, so insurance companies often have to pay more money for a rental car while you wait.
"We're seeing auto thefts at very high levels. The catalytic converter theft issue is off the charts."
Kulda says it's getting to the point that in some catalytic converter theft cases, insurance companies are deciding that it's cheaper to total the vehicle than it is to wait for a body shop to fix it.
That has prompted some drivers to drop their insurance coverage to save money.
“Some people are in this position where they’re forced to either buy food or buy their car insurance,” Kulda explains.
"If people drop coverage what happens is you might see more uninsured and underinsured coverage claims, and that means people who do have insurance have to pay more to make up for the people that drop their coverage."
Kulda says it's illegal in Minnesota to drop your liability coverage, it's required, but there are two types of insurance most drivers pay that aren't required, collision and comprehensive.
"Collision coverage pays to cover your car if you get into an accident if it's your fault. Comprehensive covers everything that isn't collision related; if it's weather-related, if it's theft, fire, flooding — things like that.”
Dropping those two coverage options can often save drivers a few hundred dollars a year, but Kulda says it's important to know what you're giving up.
If you own an older car that isn't worth much, Kulda says pocketing the money and paying for repair costs out of pocket, commonly referred to as "self-insuring" could make sense, but for most drivers, he says paying for a repair yourself could cost tens of thousands of dollars.
Plus, if you have a car loan, most lenders require collision and comprehensive coverage.
Kulda says a better way to save a few hundred dollars is to shop around.
"Just because your own insurance company is wanting to raise your rate doesn't mean they all would."
He says many insurance companies also offer deals if you bundle your car insurance and renters/homeowner’s insurance together.
He says a lot of insurance companies are also offering savings to safe drivers who are willing to install a chip into their vehicle that will let the insurance company see your safe driving habits.
“A lot of them will give deep savings if can see that you are in fact a safe driver,” Kulda says.
Bankrate says several life events can also jack up your insurance costs.
In Minnesota, a speeding ticket can add nearly $400 a year in insurance premiums.
An accident that is your fault can also add nearly $700 a year.
A DUI in Minnesota can add nearly $1,700 a year.
Adding a teenage driver to your policy can also add nearly $1,700 to your annual insurance bill.
Lastly, Bankrate says a driver who experiences a significant drop in their credit score might also see their insurance costs rise by nearly $1,500 a year.
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