Car insurance rates just had their biggest annual jump in 47 years. This is why

New York (CNN) — Across the United States, the cost of car insurance is up 19% compared to a year ago, according to August’s Consumer Price Index report released on Wednesday. That’s the biggest annual increase since 1976.

But in Florida, where extreme weather episodes are increasingly more prevalent and destructive, the cost is hitting even harder. That’s because insurance companies have to cover more claims as a result of these events, leaving them with higher losses. To compensate, they’re raising rates — or, in some cases, pulling out of states that are prone to extreme weather — according to Insurify, an insurance comparison website.

Kyle Barone is experiencing some of that first-hand.

In 2020, Barone, 26, was paying $140 a month for car insurance. When he got a new Volvo sedan in 2021 his monthly rate increased slightly to $170. Barone, who lives in Jacksonville, Florida, didn’t see another increase until February, when USAA informed him that his rate would be going up to $226 a month. Then, last month, USAA increased his rate to $278 a month.

His rate would have been at least $50 a month higher if he didn’t lower his liability coverage and increase his deductible to get a cheaper rate, he said.

He’s not the only driver dealing with this. Barone told CNN his father, who also has USAA auto insurance, but lives in Tampa, said he saw his rate almost double six months ago from $245 a month to $409 a month. While that insurance is for a 2022 Porsche Taycan, even friends of his who drive lower-end models are paying more for car insurance, he told CNN.

“It’s insane,” said Barone, who will soon be joining Norwegian Cruise Line as an ESG manager. Baffled by the increases, he reached out to USAA’s national customer service line to see what had prompted the change. The agent he spoke to seemed surprised by the increase as well, he said. But after investigating further, the agent explained to him that a slew of recent hurricanes in Florida were behind his increase.

Barone tried shopping around for better rates, but said other insurers gave him comparable or higher quotes. He expects his rates will go up again in January when his policy renews.

Drivers in the Sunshine State are paying an average of $3,183 a year for full-coverage policies — up 15% from 2022, according to a recent report from Bankrate. That makes Florida the most expensive state to get car insurance. This comes after near record-high insurance losses from last year’s Hurricane Ian, which struck Southwest Florida.

While that explains higher rates for Florida residents, has it also meant drivers who live in states that haven’t recently experienced extreme weather are shouldering some of the costs through rate increases?

Car insurance rates are increasing for a variety of reasons

Two months ago, Nationwide notified Darnell Coates-Clark, 55, an EMT based in Baltimore, that he would be hit with a 33% increase in his car insurance. That would have pushed his monthly rate up to around $420 unless he reduced his coverage.

To Coates-Clark, the increase appeared to come without rhyme or reason.

“I looked at the bill and I was like ‘What the hell?’” Coates-Clark recalled.

He said he hasn’t had any car accidents since 2009, and Maryland hasn’t experienced recent extreme weather. He acknowledged he doesn’t have “stellar credit,” which is known to impact car insurance rates. But he didn’t think it was bad enough to merit the rate increase he got.

He questions whether some of the increase in the rate he’s paying is due to extreme weather outside of Maryland that’s hurting Nationwide’s profitability as it pays out more claims for cars damaged in storm-ridden areas.

Ryan Ankrom, a spokesperson for Nationwide, told CNN “inflation and supply chain costs are the dominant factors in auto rate changes, not weather.” He did not comment on how credit scores are currently being factored into the rates they offer.

USAA, Barone’s auto insurer, declined to comment on if or how weather-related events are impacting its pricing. “Some members may see a rate increase, whether it’s due to individual factors such as location or driving record, or due to the external financial trends,” Andrew Femath, a spokesperson from USAA told CNN.

Stephen Crewdson, a senior director of insurance business intelligence at consumer research company J.D. Power, said increased car prices, repair and medical costs, are also playing a significant role.

That, combined with some of the impacts of Hurricane Ian, resulted in auto insurers losing an average of 12 cents for every dollar customers paid in premiums in 2022, according to a May report from S&P Global Market Intelligence.

Robert Passmore, vice president for personal lines at American Property Casualty Insurance Association, a trade group representing insurers, said “riskier driving behavior,” is also at play. In 2021, traffic-related deaths hit a 16-year record high, according to the National Highway Traffic Safety Administration.

“The role of extreme weather is relatively small in driving up auto insurance rates, primarily because many people can use their cars to evacuate,” he added.

Insurers tend to set policies by state

But Crewdson said it’s difficult for consumers to know the extent to which extreme weather events affect their car insurance rates if they are outside the impacted states.

That’s because auto insurers price their plans based on the losses they’re incurring on a state-by-state basis, he said. However, “there may be instances where consumers in states not affected by extreme weather are indirectly impacted,” Crewdson said.

For instance, most auto insurers have reinsurance. This is essentially insurance for insurers so they don’t always have to cover the full cost of a claim themselves. But because more frequent severe weather has made the market more unpredictable, more reinsurance companies are pulling out of the auto insurance market, Betsy Stella, vice president of carrier management and operations at Insurify said in the company’s mid-year auto insurance report.

The ones that haven’t pulled out are raising their rates to compensate. At the same time, car insurers are increasing their reinsurance coverage to protect themselves from more losses resulting from extreme weather.

These increased costs could be passed on to customers no matter where they reside, Crewdson said.

Regardless of what’s driving Coates-Clark’s policy higher, it’s putting a significant financial strain on him as he prepares to start making student loan payments next month after the three-year pause.

“I’ve had to rethink my entire budget,” he told CNN. “I’m contemplating doing overtime to pay for my [car] insurance. I’ve never had to think about that in my life.”

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