Soaring insurance premiums have people shopping for deals

The average cost of car insurance has jumped more than 20% in the last year, according to government inflation data.

According to insurance companies, there are several factors contributing to the recent surge in insurance premiums:

1. Rising cost of home and auto repairs: The cost of repairing or replacing damaged homes and cars has increased sharply due to inflation, which drives up the cost of materials and labor.

2. Increased storm damage tied to climate change: Climate change has led to more frequent and severe weather events, resulting in more claims and higher payouts for insurance companies. This includes not only hurricanes and wildfires but also hailstorms, tornadoes, and other severe weather events.

3. Lingering issues from the pandemic: Supply chain disruptions and labor shortages have increased the cost of vehicle parts and repairs, contributing to higher insurance premiums.

4. Higher medical and legal costs: Insurance companies are facing increasing costs related to medical treatments and legal disputes, which are passed on to consumers in the form of higher premiums.

5. Inflation: Economic inflation has increased the cost of nearly everything, including the cost of insurance6. As the cost of goods and services goes up, so does the cost of insurance to cover those goods and services.

6. Social inflation: This term is used to explain the rise in claims' costs that exceed those of economic inflation6. Its main causes are increased litigation and escalating settlement costs (also known as “nuclear verdicts”), both based on a perception that the insurance industry has deep pockets.

7. Reinsurance costs: Insurers also have to contend with the rising costs of reinsurance, which is insurance for insurance companies6. As the costs of claims and payouts increase, so does the cost of reinsurance, which is then passed on to consumers.

8. Riskier driving behaviors: Since the pandemic, there has been an increase in risky driving behaviors, such as speeding, texting while driving, and driving under the influence of drugs or alcohol. This has led to an increase in accidents and claims, which drives up insurance premiums.

9. Shortage of mechanics: A shortage of mechanics around the U.S. means it's taking longer to fix vehicles, which raises how much insurance companies have to spend covering the cost of rental cars for customers while their cars are in the shop.

10. Increasing sophistication of vehicle technology: Today's vehicles are equipped with more technology, such as cameras and sensors for driver-assistance features. These parts are more expensive to replace and require higher labor costs.