Car insurance premiums around the U.S. are soaring. Here's why.

American motorists are spending less on fuel than a year ago, but any savings are likely being gobbled up by soaring car insurance premiums.

Although prices at the pump in December were nearly 2% lower than a year ago, auto insurance rates jumped 20% over the same period, Labor Department data released on Thursday showed. Insurance coverage far outpaced the rate of inflation, rising six times faster than consumer prices overall last year.

Other measures show an even steeper jump in car insurance premiums. In 2023, the average U.S. rate for full auto coverage rose to $2,019 per year, up 24% from $1,633 in 2022 and nearly 29% from 1,567 the prior year, according to insurance comparison shopping site Insurify. A bare-bones policy required by states climbed to $1,154 a year in 2023.

Why are my car insurance rates surging?

Several factors are driving up the cost of car insurance, including lingering issues from the pandemic. Vehicles are more expensive and costlier to replace, with inflation driving up the cost of computer components and other parts required for repairs. 

A shortage of mechanics around the U.S. also means it's taking longer to fix vehicles — that raises how much insurance companies have to spend covering the cost of rental cars for customers while their cars are in the shop. Climate change is playing a role as well, with more vehicles damaged by extreme weather, leading to more claims and, in turn, higher premiums.

Meanwhile, insurance companies face increasing medical, legal and other operational costs, said Greg McBride, chief financial analyst at Bankrate.com. 

After Allstate threatened to pull auto coverage in three states where the insurance giant incurred heavy losses, New Jersey in December approved auto rate increases for Allstate averaging 17%, and New York allowed a 15% hike, according to the Wall Street Journal. Regulators in California are letting Allstate boost auto rates by 30%, the newspaper reported.

Priciest states

New York drivers get socked the hardest for car insurance, Insurify's data shows. The average motorist in the state shells out $3,374 per year for full coverage, an average of $281 per month. Rounding out the top 10 states as ranked by average annual premiums, according to the firm:

2. Nevada—$2,975 per year ($240/month)
3. Florida—$2,917 $243/month)
4. Delaware—$2,806 ($234/month)
5. Louisiana—$2,792 ($233/month)
6. Washington, D.C.—$2,756 ($230/month)
7. South Caroline—$2,680 ($233/month)
8. Maryland—$2,645 ($220/month)
9. Michigan—$2,640 ($220/month)
10. Rhode Island—$2,452 ($204)