Car prices will probably drop this year, but car insurance will be more expensive. Here's why.

People are spending more of their money on car insurance, and those costs are likely to continue to rise.

Drivers across the country spent an average of 2.93% of their income on auto insurance this year, based on a median annual premium of $2,014 for full protection insurance and a national median annual income of $68,852, according to Bankrate. That's up from 2.57% in 2022 when the average premium was $1,771. The difference means car insurance rates increased by almost 14% between 2022 and 2023, compared with an overall annual rise in inflation of 6.5% in December.

What's worse, rates will continue to rise this year as auto insurers continue to chase surging costs for repair parts, labor, and claims, experts say.

Basically, that means most insurers are losing money on car policies, said Martin Ellingsworth, executive director of property and casualty insurance at analytics firm J. D. Power.

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Which countries spend most of their income on car insurance?

New Yorkers spend the highest percentage of their income on auto insurance (5.05%, up 1.18 percentage points from a year ago). The state's median annual premium of $3,139 was well above the national average of $2,014 and up by $143 from a year earlier.

The high premiums "may be due in part to traffic congestion in the country," Bankrate insurance editor Cate Deventer wrote in a report. "More vehicles on the road increase the risk of accidents, and thus the risk for insurers, who set higher rates to compensate for their losses."

Florida came in second, up 0.48 percentage points to 4.9%, with an average annual premium of $3,183, up $421 from 2022. Auto insurance rates are expected to increase by 8.4% across the United States in 2023, the highest increase in six years, according to a report from research firm ValuePenguin.

Which countries spend a fraction of their income on car insurance?

Maine residents pay 1.03% of their income for car insurance, the smallest amount, likely because Maine has a much rarer population compared to New York or Florida, which results in a smaller number of car accidents. The percentage was down 0.41 percentage points from a year earlier. Maine's average full coverage premium was $941.53% lower than the national average despite a $65 increase from a year earlier.

Vermont with a percentage of 1.16% ranked next, with an average annual premium of $1,061, up $61 from 2022. Last year, Vermont residents paid 1.48% of their income for car insurance.

Why do Americans spend more money on car insurance?

The rising cost of repair parts, labor, and medical care; the increased frequency and severity of accidents; the high recording rate of personal injury verdicts and vehicle theft are increasing costs for insurers, Deventer said.

Some of those costs have already been passed on to consumers, but there's more to come. Car insurance prices are lagging because insurers must file new rates with the insurance department in each state they operate in and wait for approval before raising prices.

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How much can Americans expect to pay for car insurance?

Auto insurance rates are expected to increase by 8.4% across the United States in 2023, the highest increase in six years, according to a report from research firm ValuePenguin

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