CBS - KCAL - Auto Insurers Say Soaring Cost Of New & Used Cars One Reason Rates Need To Be Raised

Published Date: 01/17/2024

Why Auto Insurance Rates Are Rising: The Hidden Economics Behind California’s Cost Crunch

Californians are facing another kind of sticker shock — this time, not at the car lot, but in their insurance bills. Across the state and the nation, auto insurance premiums are climbing sharply, with some drivers seeing increases of 20%, 30%, or even 40%.

Industry experts, including Los Angeles–based insurance broker Karl Susman, say this surge is not driven by greed or regulatory neglect, but by a perfect storm of market forces: skyrocketing vehicle prices, supply-chain constraints, labor shortages, and a return to pre-pandemic driving patterns.

In short, the cost of owning and insuring a car has entered a new economic era — one that challenges both insurers and consumers to rethink what “risk” really means on the road.

1. The Pandemic Effect — and Its Aftermath

The story of today’s auto insurance spike begins not in 2024, but back in 2020. When the COVID-19 pandemic hit, Californians drove less. Fewer miles meant fewer accidents, and in response, many insurers issued rebates and temporary rate reductions.

For a brief period, premiums flattened or even dropped. But as restrictions lifted and people returned to their daily commutes, claim volumes shot back up. At the same time, a parallel crisis was unfolding in the auto industry itself — one that would soon ripple through every corner of the insurance world.

The global supply chain disruption that began during the pandemic caused an unprecedented surge in vehicle prices. Semiconductor shortages, factory shutdowns, and shipping delays meant that both new and used cars became scarce commodities.

According to the CBS–KCAL report:

“Used car prices are up over 26%, and new car prices are up nearly 10%. If you have a car accident, and you need a replacement vehicle, the insurance company now has to spend all this extra money to get you another car.”

That single dynamic — inflated vehicle values — has transformed the economics of auto claims.

2. Higher Car Prices Mean Higher Claim Costs

Auto insurance is, at its core, about replacement cost. If the cost to replace or repair a vehicle rises, so does the cost of the claim — and eventually, the premium.

Even routine accidents now cost insurers substantially more to resolve. A minor fender-bender that might have cost $2,000 in 2019 could easily exceed $3,000 or $4,000 today once you account for inflation in parts, labor, and diagnostic technology.

Modern vehicles, loaded with sensors, cameras, and electronics, are more expensive to fix than ever. A cracked bumper may now require recalibration of collision-avoidance systems or lane-departure cameras.

Add in longer repair timelines due to backlogged parts and fewer qualified technicians, and insurers are facing delays and higher payouts across the board.

“Supply chain issues are making repairs more costly and time-consuming,” Susman explained. “The labor shortage is keeping cars sitting in the repair shop longer — and that means insurers are paying more for rental cars and claim settlements.”

In insurance terms, that’s called loss cost inflation — and it’s hitting auto carriers as hard as wildfire exposure is hitting homeowners’ insurers.

3. California’s Regulatory Lag

In most states, insurers can respond to rising costs by adjusting their rates quickly. But in California, rate changes must first be approved by the Department of Insurance (CDI) — a process governed by Proposition 103, the same 1988 law that regulates homeowners’ insurance filings.

While Prop 103 was originally designed to protect consumers from excessive rate hikes, it has become a double-edged sword. Because every rate adjustment requires extensive justification and a formal review, insurers are months or even years behind in aligning premiums with actual claim costs.

The CBS–KCAL segment noted that the Department of Insurance is “very consumer-friendly” and has so far not approved most of the rate increases requested by auto insurers — even as inflation and claims costs have surged.

That means carriers are absorbing those extra costs for now, but as Susman and other industry analysts warn, the approvals will eventually come — and likely in large increments.

“So far, no rate increases have been approved,” Susman explained, “but many insurers have applied — and it’s likely coming.”

In other words, the upward correction has only just begun.

4. Inflation’s Ripple Effect on Auto Insurance

Auto insurance doesn’t exist in isolation. It’s tied to every economic variable that affects the cost of owning and operating a vehicle. Over the past three years, all of those inputs have spiked:

   Factor Impact on Insurance Costs     Vehicle Prices 26% higher for used cars, 10% higher for new cars. Raises replacement costs per claim.   Repair Costs Up due to supply chain issues and parts inflation.   Labor Shortages Longer repair times mean higher rental car and storage reimbursements.   Miles Driven Return to pre-pandemic traffic levels increases frequency of accidents.   Medical Costs Inflation in healthcare impacts bodily injury claims.   Litigation Higher jury awards and legal costs increase claim severity.   

The combination of these pressures has pushed insurers into what analysts call a “loss ratio squeeze.” Even with higher premiums, many carriers are reporting underwriting losses, meaning they’re paying out more in claims than they collect in premiums.

The result is the same dynamic seen in California’s property market: fewer carriers, higher rates, and stricter underwriting.

5. The Consumer’s Dilemma

For everyday drivers, the increase in premiums is not abstract — it’s a real and immediate burden.

One young driver interviewed in the CBS–KCAL report put it plainly:

“I’m 19 years old. I have my own bills to pay. I just moved to L.A. on my own, and I’m having a hard time keeping up.”

She’s not alone. According to data from Bankrate and Quadrant, California’s average annual premium for full coverage has jumped from $2,190 in 2021 to over $2,750 in 2024 — a 25% increase in just three years.

In an economy already squeezed by rent, fuel, and food prices, higher auto insurance is another blow to affordability. Yet the solution isn’t as simple as freezing rates.

When rates are kept artificially low, insurers reduce coverage options or pull back from riskier segments — leaving consumers with fewer choices and less flexibility.

6. What Drivers Can Do Right Now

While individuals can’t control inflation or regulation, there are practical steps drivers can take to soften the blow.

🧭 1. Shop Around — or Use an Independent Broker

Even in tight markets, competition still exists. Independent brokers can compare multiple carriers to find the most cost-effective coverage.

🚗 2. Adjust Coverage Where Appropriate

Drivers with older vehicles might consider dropping comprehensive or collision coverage if repair costs exceed the vehicle’s value.

⛽ 3. Drive Fewer Miles

As Susman noted, mileage directly affects rates.

“If you drive less miles per year, your insurance company will have to lower your rates.”

Usage-based insurance programs — which track mileage or driving habits — can offer discounts of up to 20%.

💳 4. Ask About Discounts

Many insurers offer price reductions for bundling home and auto policies, completing defensive driving courses, or installing anti-theft devices.

🧾 5. Review and Update Regularly

Market conditions change quickly. Reviewing your coverage every six months ensures your policy reflects your actual driving habits and financial needs.

7. The Road Ahead: Temporary Spike or Structural Shift?

Will auto insurance rates stabilize in the coming years? Possibly — but not immediately.

Experts predict that rate hikes will continue through late 2025 as regulators approve backlogged filings and carriers work to align premiums with claim costs. Once supply chains normalize and used vehicle prices cool, insurers could regain some stability.

However, there’s also evidence that a structural shift is underway. Vehicles are becoming more expensive to build, repair, and insure due to embedded technology and safety systems.

Electric vehicles, while safer in some respects, pose new challenges — from high battery replacement costs to limited repair networks. As more EVs hit California’s roads, insurers will need updated models to accurately assess and price those risks.

8. A Familiar Lesson: When Economics Meets Regulation

What’s happening in California’s auto insurance market mirrors the broader property insurance crisis: a collision between economic reality and regulatory rigidity.

Both sectors are facing rising costs, delayed approvals, and consumer frustration. And in both cases, the underlying message is the same — insurance cannot stay affordable if it cannot stay viable.

California’s Department of Insurance is now under growing pressure to modernize its review process for both home and auto filings, allowing rate adjustments to better reflect real-time data.

Without those updates, consumers may face periodic rate “shocks” — large, sudden jumps — instead of smaller, more manageable increases over time.

Conclusion: Driving Toward Balance

California’s auto insurance market, like its property insurance system, sits at an inflection point. The question is whether policymakers will adapt fast enough to prevent further strain on consumers and carriers alike.

As Karl Susman aptly summarized:

“Nothing’s gone down since COVID — not cars, not parts, not gas, not claims. Everything costs more. Auto insurance is just catching up.”

For drivers, that means preparing for continued adjustments — but also recognizing the larger forces at play. The road ahead may be expensive, but it’s navigable with the right information, tools, and expectations.

In the end, understanding why rates rise is the first step toward managing them. And in California, where mobility is a way of life, that knowledge may be the most valuable policy of all.