Prediction: Here's How Much Auto Insurance Will Go Up in 2025

The cost of an average auto insurance policy will rise by 22% in 2024, and residents of some states could see the cost of coverage rise by 50% or more, according to Insurify. And this is on top of an average increase of 24% in 2023.

However, there's good reason to believe that drivers will finally start to see costs stabilize in 2025. Here's why, and where I predict auto insurance rates are heading next year.

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Why has auto insurance spiked so much in the past couple years?

Although it's been a painful time for many auto insurance customers, it isn't because the insurance companies got together and simply decided to raise prices. There are some legitimate reasons behind the auto insurance spike, including the following.

Inflation

The U.S. just experienced its highest inflation in 40 years, and this has affected the automotive industry more than most. In the two-year period from 2020 to 2022 alone, the average cost of a new vehicle in the United States increased by 19%.

Repair costs

Not only has inflation made it more expensive to get parts for repairs, but wage growth has made repair-related labor costs more expensive. The cost of providing rental cars while repairing a vehicle has increased as well. In all, it's estimated that the cost to repair vehicles increased by 17% in 2023 alone.

Litigation

More people are choosing to involve lawyers in accident claims in recent years, which has led to higher average settlement costs for insurers.

Weather events

There have been more weather related events in recent years, especially when it comes to those that cause widespread vehicle damage. As an example, hail-related claims have risen from 9% of all comprehensive claims in 2020 to nearly 12% last year.

It may seem odd that inflation was highest in the 2022–23 timeframe and we're still seeing sharp increases. Insurance premium increases are often delayed, as they're required to be approved by each state's department of insurance. Because of this, cost increases your insurer is seeing might not be reflected in your policy's cost for a year or more.

Could costs start to stabilize in 2025?

While there's no way to know for sure, there are some reasons to believe that auto insurance could stabilize in 2025. I just mentioned how auto insurance changes often reflect things that happened a year or so before. With that in mind, consider the following:

• Although the average new vehicle selling price jumped 19% from 2020 to 2022, it has only increased by about 4% in the two years since. In fact, some experts have projected that the average new vehicle selling price will fall slightly in 2025.
• After a couple of bad years for profitability, Fitch Ratings says that auto insurers are in far better financial shape in 2024 (so less of a need to increase premiums sharply).

To be sure, I don't expect car insurance costs to decline in 2025, or anytime soon for that matter. But I predict that we'll see premium increases at a 5% to 6% annual rate, which is in line with historical averages. In other words, I'd expect a more normal year for the auto insurance industry than we've seen recently.

The bottom line

Nobody has a crystal ball that can predict auto insurance rates. After all, few experts thought at the start of 2023 that we were set for a 50%-plus spike in just two years. However, after two rather painful years for auto insurance customers, while I don't expect rates to get lower, I do think we're finally getting close to a leveling off of premiums.