How climate change may impact your auto insurance

Extreme heat waves have blanketed the southern U.S., and out-of-control Canadian wildfires have caused poor air quality in many parts of the country. Weather events such as hurricanes and floods are becoming more intense. June 2023 was the hottest June on record, according to NASA. And the World Meteorological Organization predicts temperatures worldwide will hit new highs in the next five years.

These more severe weather events are all due to climate change, which increasingly affects people in every aspect of life—and your auto insurance rates may be next. CheapInsurance.com explored how increased extreme weather and natural disasters affect car insurance and what it means for consumers.

Property and casualty insurers issue insurance policies on cars, homes, condos, apartments, and motorized vehicles like motorcycles and boats. Climate change is making it more difficult for them to do business. According to a report from Capgemini’s industry analysts, “The insurance industry is paying a steep price as climate change accelerates. Natural catastrophe events have led to a 3.6 times increase in insured losses and a 2 times increase in uninsured losses over the last 30 years.”

When insurance companies have to pay more to settle claims, they pass off the cost to consumers through higher premiums. Post-pandemic auto insurance premiums have skyrocketed, rising nearly 16% between April 2021 and June 2023, according to the Federal Reserve Bank of St. Louis. CBS reports that in dollar amounts, that’s an average of $240 a year, making the average premium just over $2,000 a year, although that can be higher depending on where you live. For example, Floridians pay almost $3,200 a year.

It also costs more these days to repair and replace vehicles due to rising prices for parts, labor, and rental cars that your insurance company may provide if your damaged vehicle is in the shop. Claims from severe climate-related weather events are a part of the equation.