In 2024, California experienced a dramatic increase in car insurance rates, with full coverage now averaging $2,575 per year. This represents an 11% increase over the national average. The rise is attributed to new legislation, climate-related risks, and rising maintenance costs. Additionally, electric vehicles (EVs) are contributing significantly to higher premiums due to their complex repair requirements. Despite these challenges, Insurify predicts some relief for Californians in 2025 as the industry stabilizes.
Legislative Changes and Climate Risks Drive Rate Increases
The recent spike in California's car insurance premiums can be largely attributed to legislative changes and environmental factors. Starting January 1, 2025, the state doubled its mandatory liability limits, moving away from being one of the five states with the lowest requirements. This shift has led to a substantial increase in premiums. Furthermore, natural disasters such as wildfires have resulted in significant losses for insurers, necessitating higher rates to cover potential claims. These factors combined have created a perfect storm for rate hikes.
During the COVID-19 pandemic, California's Department of Insurance froze insurance rates for two years. As a result, many insurers faced financial shortfalls and subsequently requested double-digit increases to compensate. Some companies even exited the state altogether. While acts of nature like wildfires can cause total vehicle loss, it is the rising costs of auto maintenance and repairs that have had a more significant impact on insurance rates. According to the U.S. Bureau of Labor Statistics, motor vehicle maintenance and repair costs increased by 5.7% in 2024, further exacerbating the situation.
Electric Vehicles Contribute to Higher Premiums
The increasing popularity of electric vehicles (EVs) in California has added another layer of complexity to the insurance landscape. With over 1.2 million light-duty EV registrations in 2023, California leads the nation in EV ownership. However, this trend comes with a cost. Insurance rates for EVs surged by nearly 30% in 2024, twice the rate of gas-powered vehicles. High repair costs are a key factor in these premium increases. On average, post-accident repairs for EVs cost $6,066, which is nearly 30% more than traditional vehicles.
Among the nine popular EV models analyzed by Insurify, the Tesla Model 3 stands out as the most expensive to insure. Its average annual full-coverage premium is $4,362, 25% higher than comparable internal combustion engine vehicles like the Mercedes-Benz A-Class. This discrepancy highlights the unique challenges posed by EVs in terms of repair and maintenance. While California may see some relief in 2025, the ongoing trend of rising EV ownership will likely continue to influence insurance rates in the future.