In the last few years of an inflationary economic environment, consumers have become accustomed to paying more for everything. But with auto insurance premiums projected to increase at an average of 7.5% in 2025, according to the “State of Auto Insurance in 2025" report from ValuePenguin, consumers are running out of patience with the “everything costs more" explanation they've been given so often during the past couple years. 

Rate increases are caused by more than just a driver's accident and claims history—the make and model of the vehicle, driver's behavior and location have always been staples of auto insurance rating. However, in 2025, multiple broad market trends are causing premium increases that are forcing agents to explain macroeconomic and political trends in everyday personal lines conversations.

Repair costs are skyrocketing while rising state-mandated liability limits are forcing drivers to buy more coverage. Telematics programs promise savings for safe drivers but raise privacy concerns, and distracted driving continues to drive up accidents and claims. Together, these trends are sending auto insurance premiums into overdrive, leaving consumers frustrated and budgets stretched.

Answer questions and paint a picture for your clients of what to expect in this year's auto market by being prepared to discuss these six market trends: 

1) Auto parts and repairs are more expensive. As cars add more technology, it costs more to repair or replace electronics and recalibrate them. Auto bodywork is also more expensive due to the way cars are made. Further, because most auto parts are imported, any type of tariff will impact the cost of obtaining parts.

“Auto repairs have become more costly due to increased technological sophistication in vehicles," says Loretta Worters, Insurance Information Institute (Triple-I) vice president for media relations. “Although new technology helps save lives, the cost to repair it is high."

According to Triple-I data, auto replacement costs are expected to rise by 2.8% in 2025, excluding labor, and 3.8%, including labor, compared to 2024. Ultimately, the sum of higher loss costs equals higher premiums.

Clients need to understand that even with an “ordinary" loss, more cars are considered totaled than ever before. “Modern cars are rolling computers," says Michael J. McCartin, principal agent, Joseph W. McCartin Insurance Inc., in Beltsville, Maryland. “Features like sensors and cameras in windshields can make even simple repairs very expensive."

When discussing the cost of repairs with clients, McCartin provides examples clients can relate to, such as the rising cost of an oil change or windshield replacement, to help them understand the impact of inflation.

2) Driving is more dangerous. The pandemic altered the driving landscape. Although accident frequency decreased because people were driving less, severity increased. The trend of driving less also means that drivers—especially new drivers—are less experienced, which can affect their driving style and reaction time in traffic or on highways.

Overall, claim severities have steadily trended upward since the pandemic. Since 2020, bodily injury severity has risen 20%, while severity for all material damage coverages has increased 47%, according to the 2024 “LexisNexis U.S. Auto Insurance Trends Report."

Drivers are also taking more chances. Distracted driving—primarily through cell phone use—has increased over the last four years, according to Arity, along with more drivers speeding. Distracted driving goes well beyond cell phone use and, by definition, includes eating or drinking, carrying on conversations with passengers, checking directions and texting.

Although drivers can set smartphones to “do not disturb while driving," the latest report from Cambridge Mobile Telematics, “The State of U.S. Road Risk in 2024," found that only 20% of drivers frequently use the function. The report also found that seven of the top 10 insurers today use distracted driving as a rating variable, which means that drivers who focus on the road instead of their phones will pay less for insurance.

The National Highway Traffic Safety Administration (NHTSA) has identified three ways drivers can be distracted:

• Visual distraction: Taking their eyes off the road.
• Manual distraction: Taking their hands off the wheel.
• Cognitive distraction: Taking their minds off driving.

In 2022, distractions accounted for 3,308 fatal crashes, with cell phone use attributed to 402, according to the NHTSA.

Share these facts with clients and explain that even though calls can be made through the car's connected technology, talking on a cell phone is still a distraction. And distracted driving doesn't just cause fatal crashes. Drivers and passengers can be severely injured in distraction-related accidents, and cars can receive major damage. Further, less severe accidents from distracted driving still result in expensive losses due to the increase in repair costs.

3) States are stepping in to increase coverage minimums. Every state has laws regarding the minimum amount of auto insurance that each driver must buy. States often have uninsured/underinsured motorist (UM/UIM) requirements as well. States are taking a fresh look at limits and new, increased minimum limits are expected to result in significantly higher premiums for drivers in many states. Several states raised their minimum coverage limits as of Jan. 1 to reflect the increasing cost of repairs and court verdicts and settlements.

Review coverage limits with clients and explain that minimums are just that—the minimum amount of coverage that the state believes is necessary to compensate anyone who has been in an accident. However, in the current litigious climate, agents should help clients determine whether the limits are enough if the other party in an accident sues them. This conversation is especially critical for high-net worth clients.

Some drivers may consider dropping their auto insurance completely; however, this option comes with the risks of losing their drivers' license, facing fines and being unable to register their vehicle.

4) Severe weather affects more than just home insurance rates. After natural disasters like Hurricanes Helene and Milton, as well as the January wildfires in California, property owners expect their insurance premiums to increase, especially when they try to rebuild in the same location.

The issues are similar for motor vehicles that are destroyed in natural disasters or damaged by tornadoes, floods or hailstorms. Flooded vehicles are full of mold and rust and fire can turn cars into lumps of molten metal. In most cases, drivers would have comprehensive coverage to cover the loss; however, it's not always enough to buy a new car.

Premiums for new cars are typically higher than for used cars, so a driver replacing a damaged vehicle may consider a used car. However, Cox Automotive predicts that used-vehicle inventory at retail will remain relatively tight, limiting the buyer's choices.

Make sure clients understand that the location where the vehicle is kept is factored into the rate. If the new vehicle will be garaged in the same area as the old one with the same risk of flooding or wildfires, the rates are likely to increase.

When clients are faced with steep premium increases, agents need to offer options. “For clients with a low deductible," McCartin says, “we suggest raising their deductible—if they can afford the out-of-pocket costs. If they can't, there's not much you can do except change their coverage."

5) Telematics can move rates in both directions. Most new cars are equipped with some form of telematics that sends data to the insurance company or a third-party vendor. “The more personalized data that is available to insurers, the better they will be able to set rates tailored to individual drivers," says Donald Light, a director in Celent's North America Property Casualty Practice.

He recommends that agents take the time to explain to clients who are contemplating buying a new car that there are two kinds of telematics programs. The most common is usage-based insurance (UBI), which records the miles driven. The other, more generic, telematics program is based on the way the driver operates the vehicle. Insurance carriers use the data to calculate premiums based on whether the driver exhibits safe or unsafe driving behavior. 

“Not all carriers offer both kinds of telematics," Light points out. “When looking for the right policy for the client, agents should consider which carriers with a telematics program would fit with the way the client drives."

Another consideration for agents to discuss is whether the client is interested in being a safer driver. “Generic telematics programs provide feedback on driving habits like hard braking or hard acceleration, for example," Light says. “Telematics are also useful with teenagers who may not be experienced drivers. The app can share the data with the parent, who can coach the teen on better driving habits."

Agents can also explain the kinds of data collected by the telematics programs. “There are some basic data points like the number of hard accelerations, hard braking and speeding that all programs collect," says Light. “Other programs also collect the vehicle's geolocation and can track the specific highways the insured drives on, as well as the speed limit on that stretch of road. The program will record that the driver was traveling over or under the speed limit, by how much and at what time of day."

Light notes that many carriers offer a premium discount for enrolling in a telematics program, which he expects to be an increasing trend. But, depending on what the telematics reveal about the driver's actual behavior, carriers will either continue to offer some additional good driver discount or they may increase the premium. For example, if a driver has not had any accidents but the telematics reveals unsafe driving, the driver's discount may be discontinued.

6) Electric vehicles (EVs) continue to cause premium sticker shock. Global EV sales are expected to grow 30% annually up to 2030, with corresponding growth in the EV insurance market, according to Cognitive Market Research. It's not clear whether EV sales in the U.S. will mirror that growth, especially with waning support from the federal government.

ValuePenguin found that the attractiveness of electric vehicles is slowing, and they cost about 23% more to insure than comparable model gas-powered vehicles.

Yet, as many as 1 in 4 vehicles sold in 2025 will be EVs, according to predictions from Cox Automotive, which say that EVs will account for approximately 10% of the overall auto market. This growth can be attributed to about 15 new EV models coming on the market and drivers buying EVs before predicted cuts to state and federal incentives by the Trump administration. In addition, the EV charging network is expanding, making it easier to recharge.

When clients tell agents that they're considering an EV, agents need to point out certain factors that may impact the insurance premiums. First, the average repair cost for an EV is 46.9% higher than that of a non-EV, according to CCC Intelligent Solutions' “Crash Course Q3 2024 Report."

Second, a challenge for drivers and underwriters is that EVs operate differently than vehicles with internal combustion engines (ICEs). Instead of a steady rate of acceleration from a full stop, EVs accelerate more abruptly. This has resulted in a higher probability of expensive damage in accidents worldwide, according to a report from the National Business Daily.

Third, EVs require more infrastructure than ICE vehicles. For example, drivers must add charging stations to their homes, which increases the fire and explosion risks, in addition to the increased risks when batteries are replaced.

Lastly, EVs have more digital sensing and laser and radar devices, and their high use of embedded software and driver assistance systems means that they require more time for problems to be diagnosed and for those systems to be recalibrated.

The best advice for setting the stage with clients about how broader auto insurance trends will ultimately affect their policy? Get in front of them before they see the renewal. “I've been doing this for 35 years, and it's the toughest market I've seen," McCartin says. “Do anything you can do to communicate with clients."

“Often, younger people don't want to talk to you, so send them something that grabs their attention," McCartin adds. “They might only look at it for 30 seconds, but I think getting in front of people has helped us."

Rosalie Donlon is a former attorney and managing editor at Aartrijk.