Half of U.S. auto insurance customers bought new insurance in the past year. – Drew Ungerer/Getty Images
Drivers no longer simply accept the fact that they have to pay more for car insurance.
According to research firm J.D. Power, half of U.S. auto insurance customers have actively searched for new insurance in the past year, up from 41% in 2021. In addition to calling insurers to switch, more drivers are also changing their policies on their own.
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Among the many measures drivers are taking are increasing their deductibles to reduce regular payments. They’re also considering pay-per-mile insurance plans, which are now being offered by more insurers than before the pandemic, according to Bankrate analyst Shannon Martin.
Nationwide, auto insurance is being overhauled, in large part due to price: Over the past year, the average annual cost of full-coverage auto insurance rose 12% to $2,278, according to Bankrate, on top of a 7% increase the year before.
Financial advisers say new-car insurance costs are also expected to rise as some buyers opt for cheaper vehicles.
Juan and Perla Gonzalez initially wanted to buy an SUV, but after learning insurance would cost about $4,200 a year, they opted for a sedan.
A Miami couple in their mid-20s discovered they could get their car for half that price by opting for a less expensive car.
“We decided that being able to comfortably pay our insurance premiums was more important than driving a nicer car,” Juan Gonzalez said.
Popular Plans
Pay-per-mile plans are also becoming more popular. Drivers typically pay a base rate and then a flat rate for each mile they drive. Insurers including Allstate, Nationwide and USAA offer these plans, which can potentially save consumers hundreds of dollars a year, according to Bankrate’s Martin.
For example, say you pay a base rate of $35.60 per mile driven per month. If you drive 400 miles, you’ll pay $59 that month. Your monthly payment will vary depending on the mileage.
For people who drive less than average, these plans can be cheaper than traditional insurance: According to a study by S&P Global Mobility, Americans will drive an average of 13,039 miles this year.
Joseph Cover, an independent insurance agent in Towson, Maryland, said he’s seen more people inquire about mileage plans this year than last, often retirees or people who work in remote locations who don’t use their cars every day.
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Cover tells clients that if they drive more than 4,000 miles a year, traditional insurance is probably more cost-effective, and for many clients, increasing their deductibles is often the easiest way to save money, he said.
The only caveat that insurance agents will caution you about with pay-as-you-go plans is tracking. If you have this insurance, your insurance company will track the mileage you drive, usually via a mobile app or a device connected to your vehicle. They may also collect other data used to calculate your premiums, like where you drive, how well you drive, how often you speed, and whether you brake suddenly.
Robert Hartwig, director of the Center for Risk and Uncertainty Management at the University of South Carolina Business School, said people should read the fine print in their policy to determine what information will be shared with the insurer.
Prices soar
Tim Zawacki, insurance strategist at S&P Global Market Intelligence, said premiums were rising for several reasons, including higher auto prices and repair costs.
Auto repairs have become more expensive, in part because the technology inside cars has become more complex. And theft, especially of catalytic converters, has been on the rise. About 1.02 million cars were reported stolen last year, a 1% increase over 2022, according to the National Insurance Crime Bureau.
Auto insurers pass on some of the costs of paying large claims to consumers in the form of higher premiums.
Harold Weston, a clinical professor of risk management and insurance at Georgia State University, said insurance companies are also paying out more after car accidents, due in part to rising medical costs.
Premium increases are based on factors such as claims history, driving behavior and age. Urban drivers tend to pay higher premiums than rural drivers due to higher incidences of theft and vandalism.
According to a recent analysis by personal finance company NerdWallet, the most expensive state for car insurance is Florida, where drivers pay an average of $3,067 per year, followed by Louisiana ($3,037) and Texas ($2,567). The cheapest states are Wyoming ($972), Vermont ($1,082) and New Hampshire ($1,119).
The Insurance Information Institute, also known as Triple I, an insurance industry trade group, predicts that premiums will rise another 9% on average in 2025.
Other Popular Strategies
Insurance agents say they are also seeing an increase in customers inquiring about their deductibles – how much they’ll pay for repairs before insurance kicks in – or opting to increase their deductibles.
The total amount you can save by choosing this option varies: As one example of potential savings, increasing your deductible from $200 to $500 could reduce your premiums for both collision and comprehensive coverage by 15% to 30%, says Hartwig, the professor at the University of South Carolina Business School.
But if you choose this option, financial advisers say to make sure you have enough money saved up to cover some of the repair costs yourself. Drivers who have six months’ worth of living expenses in cash will feel more confident about increasing their deductible, says Eric Simonson, a financial planner in Houston.
He said some customers are considering lifestyle changes, such as downsizing to a one-car household, to reduce insurance premiums.
You can also cut costs by paying a year’s premium up front: Marianne Nolte, a financial planner in Lake Havasu City, Arizona, recently helped a client shave $72 off a $726 premium this way.
“Every little thing counts,” Nolte said.
Write to Veronica Dagher at Veronica.Dagher@wsj.com.