Inflation Hits Auto Insurance; Rates are Up and So Are Deductibles

“Affordability” is a big concern for car buyers these days. But whether you’re buying something new or hanging onto a jalopy you’re owned for years, the cost of insurance is going up, and as rates and deductibles climb less affluent customers feel more pain.

Most states require motorists to have some sort of insurance, which means it automatically becomes part of the day-to-day cost of driving, like gasoline or electricity, and it is getting steadily more expensive than only a few years ago, according to experts who keep tabs on the insurance market.

For many drivers, auto insurance rates are going up faster than overall inflation – forcing many customers to accept higher deductibles.

“Between 2020 and 2024, inflation increased the cost of vehicle parts and labor, car crash fatalities increased by over 10% and we saw a significant rise in extreme weather and vehicle theft claims,” Kiplinger Magazine observed recently. “All these factors contribute to the high rates we’re seeing today.”

Technology driving up cost of repairs

Moreover, the costs are not likely to decrease in the future. One of the big problems is the rising cost of repairing damaged vehicles, Aaron Schulenberg, executive director of the Society of Collision Repair Specialists, noted during a conference in Detroit organized by the Federal Reserve Bank of Chicago. The increase is not dramatic but has been rising at a steady rate of about 2% per year.

A key reason for that increase has been the growing complexity of vehicles coming in for repairs, according to Schulenberg.

Today’s newest vehicles keep adding more advanced driver assistance systems which require sensors needing calibration. Even replacing a cracked windshield can require recalibrating the sensors mounted in and around the rearview mirror. Fixing a “ding” in a vehicle’s door might require removing and recalibrating a high-tech sideview mirror, Schulenberg noted.

Keeping up with the latest tech advances means repairs shops are constantly having to send their technicians for special training to adjust to the increasingly sophisticated technology.

Less affluent customers left holding the bag as rates increase

Rising insurance costs are hitting all motorists. But they can be a particular strain on the less affluent who already are struggling with the impact of inflation on other necessities, such as food, energy and housing.

Doug Heller, director of insurance for the Consumer Federation of America, noted insurance companies have tried to anticipate what inflation will mean to their costs, raising rates accordingly. In a number of instances, consumer groups have challenged insurer claims, however, pointing to higher industry profits and shareholder dividends.

After watching rates go up by double digits since the beginning of the decade, regulators have been stepping in. That’s led to rebates for some motorists and, in some states, including Florida and Illinois, new regulations and reforms have been put in place to prevent what critics have argued are unfair rate hikes.

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A patchwork

Insurance is regulated at the state level, which means there is a patchwork of regulations producing different outcomes. Industry watchdogs like the Federation have found over the years states with tighter regulations produce more stable pricing for what has become an economic necessity. States with looser regulations tend to have more volatile pricing, which can be frustrating for consumers.

While car insurance becomes increasingly more difficult to afford, motorists need beware the perils of underinsurance, Kiplinger’s noted. “Because car insurance rates have surged in 2025, many drivers are dropping coverage, putting both them and insured drivers…at financial risk,” Kiplinger’s said.

Schulenberg said consumers are attempting to offset the rising cost by increasing their deductibles. “Five years ago you would never see a $2,000 deductible,” he said. “Now (it’s)becoming more common.”

A vicious circle

One of the most controversial facts of auto insurance is how a motorist may be penalized for factors that have nothing to do with their driving record.

Heller said the rising cost of auto insurance falls heaviest on consumers with fewer financial resources. “If you have an excellent credit score and a drunk driving conviction, you will pay less for insurance than someone with a lower credit score and an excellent driving record,” Heller said.

More affluent consumers can also afford the higher deductibles, which are becoming more common, while less affluent customers need the insurance coverage financially even if they are risking cancellation if they file a claim, Heller said.