In 2024, California’s average annual car insurance premium is $2,416, making it one of the most expensive states for auto insurance. Several factors contribute to these high rates, including the state’s densely populated cities, expensive healthcare, costly auto repairs and the risk of natural disasters.
Many insurance companies have raised their rates with approval from California’s Department of Insurance, but some, frustrated with state rules, have either limited the number of new policies they offer in California or stopped offering them entirely.
Continue reading to learn why rates are increasing in California and what steps you can take to find affordable premiums.
- California Department of Insurance approves more than $1 billion in car insurance rate increases.
- Factors like inflation, rising repair and claims costs and bad driving cause rate increases.
- You can save significant money on car insurance by shopping around, asking about discounts and increasing your deductible.
Why are California drivers paying more for car insurance?
The rate increases approved by Lara represent a challenge for California drivers grappling with high inflation and rising interest rates.
Drivers pay $71 more with State Farm versus $80 more (per vehicle) with Mercury, $98 more with Farmers, $125 extra with Geico, $140 more with IEAC, and $167 more with Allstate.
Janet Ruiz, director of strategic communications for the Insurance Information Institute, isn’t surprised by the premium hikes.
“The rising inflation, cost of car repairs, shortage of auto parts, increased labor prices, shortage of labor, increased length of time to repair causing longer car rental periods, and the rise in claims litigation have increased the overall costs that insurers have paid in claims,” she says. “Bad driving has also increased the frequency and severity of claims. Fatalities have increased for the first time in several years. These factors have all contributed to the need to increase auto rates in California.”
She said Lara’s office didn’t approve rate increases for more than two years during the COVID crisis, and inflation has increased.
“But we’ve returned to and exceeded pre-pandemic levels of cars on the road, with increased frequency and severity of accidents occurring,” Ruiz says.
California’s car insurance laws and how they affect rates
California law mandates that all drivers carry minimum liability insurance coverage. As of January 1, 2025, California mandates that all drivers carry liability insurance with the following minimum limits:
- Bodily injury damage: $30,000 per person and $60,000 per accident.
- Property damage: $15,000 per accident.
These adjustments, up from the previous minimums of $15,000 per person, $30,000 per accident and $5,000 for property damage, aim to provide greater financial protection in the event of an accident.
Penalties for driving without insurance
Operating a vehicle without the required insurance in California can result in:
- First offense: A fine ranging from $100 to $200.
- Subsequent offenses: A fine between $200 and $500.
- Additional penalties: Possible suspension of driver’s license, vehicle registration suspension and the requirement to file an SR-22 certificate to demonstrate financial responsibility.
Low-cost auto insurance program
California offers the Low-Cost Automobile Insurance Program (CLCA) for low-income drivers. This program provides affordable liability insurance to those with specific income eligibility requirements, helping more drivers comply with the state’s insurance laws.
Impact on insurance rates
- Risk-based pricing: Emphasizing factors like driving record and experience allows insurers to price policies based on actual risk, potentially lowering rates for safe drivers.
- Consumer protection: California state laws aim to make insurance rates more equitable by prohibiting the use of credit scores and other non-driving-related factors.
- Mandatory minimums: The required minimum coverage levels set a baseline for insurance costs, influencing the overall pricing structure.
- Incentives for safety: Discounts like the good driver discount encourage safe driving habits, which can lead to lower rates. Insurance companies often offer this discount to students who attend school full-time and maintain a GPA of 3.0. In California, you can save up to $629 or about 9% on your auto insurance premium with a good student discount.
California’s car insurance laws are meant to protect drivers while keeping prices fair. The state controls what factors insurers can use to set rates and encourages safe driving through discounts and programs. This helps make car insurance more affordable and ensures rates are based on individual driving behavior.
Regional differences in car insurance rates
Car insurance rates in California vary significantly from one region to another. These differences are influenced by several factors, including population density, traffic patterns and the risk of natural disasters. Here’s how much car insurance rates vary by city.
| City | Average annual rate |
|---|---|
| San Diego | $2,324 |
| Fresno | $2,385 |
| San Jose | $2,406 |
| Bakersfield | $2,477 |
| Anaheim | $2,572 |
| Sacramento | $2,665 |
| Long Beach | $2,681 |
| San Francisco | $2,777 |
| Oakland | $2,802 |
| Los Angeles | $3,149 |
Population density
Cities like Los Angeles, San Francisco and San Diego have high population densities, which leads to congested roads and a greater likelihood of accidents. More accidents mean more insurance claims, which drives up premiums in these areas.
On the other hand, regions like the Central Valley or Northern California have fewer vehicles on the road, reducing the chance of collisions. Due to the decreased risk of accidents, insurance rates are generally lower.
Risk of natural disasters
Regions susceptible to wildfires, such as parts of Southern California, face higher risks of vehicle damage or loss. Insurance companies may raise premiums to offset the potential costs of natural disasters.
Crime rates
Higher crime rates in cities can lead to more incidents of theft or vandalism and insurance costs may be higher to cover these risks.
Regional differences in car insurance rates within California are largely driven by population density, traffic conditions and natural disaster risks. Urban areas with dense populations and high traffic volumes tend to have higher insurance premiums due to the increased likelihood of accidents and claims. Natural disasters like wildfires and earthquakes also play a significant role, especially in areas prone to these events.
How demographics impact car insurance rates
In California, car insurance rates are influenced by several factors. Some of them are mentioned below.
- Age: Younger drivers, particularly teenagers, face higher premiums due to inexperience and higher accident risk. As drivers age and gain experience, rates typically decrease, with drivers in their 50s often paying the lowest premiums.
- Marital status: Married drivers often receive lower rates than single drivers because married individuals are statistically less likely to file claims, leading insurers to view them as lower risk.
- Location: Where you live in California affects your rates. ZIP codes with higher traffic and accident rates often have higher premiums.
- Vehicle type: The make and model of the car, as well as its safety features, can influence insurance costs. Luxury, sports, or high-performance vehicles usually cost more to insure due to higher repair costs and theft rates.
- Driving history: A history of at-fault accidents can substantially increase your premiums. Insurance companies view drivers with prior accidents as higher risk. Moving violations such as speeding tickets, DUIs, reckless driving and running red lights also lead to higher rates.
California law prohibits the use of gender and credit scores in determining insurance rates. Safe driving habits, maintaining continuous coverage and taking advantage of available discounts can help lower your premiums.
The role of insurance providers and how they set rates
Car insurance providers in California play a crucial role in ensuring that drivers have the necessary financial protection in case of accidents, theft or other vehicle-related incidents. They provide a range of auto insurance policies that comply with California’s minimum insurance requirements and additional coverage options for enhanced protection.
Insurers assess drivers’ risk profiles based on various factors to determine eligibility for coverage and set premiums.
In California, the process of setting car insurance rates is regulated to ensure fairness and prevent discriminatory practices. Insurers consider factors such as a driver’s age, driving history, location, vehicle type and coverage limits to determine premiums.
California law prohibits the use of certain factors that are permissible in other states. Insurers cannot use credit history, gender and race to set insurance rates. The California Department of Insurance oversees the rate-setting process to protect consumers and maintain a fair marketplace.
Future outlook: What’s next for car insurance rates in California?
Car insurance rates in California are expected to rise due to several factors, one of the most significant being the increase in minimum coverage limits mandated by the state. Starting in 2025, the minimum bodily injury liability coverage per person will increase from $15,000 to $30,000, bodily injury limits per accident from $30,000 to $60,000 and property damage coverage from $5,000 to $15,000.
These increased coverage limits are intended to provide better financial protection for drivers. However, they also mean that insurance companies will face higher potential payouts in the event of claims. To offset this increased risk, insurers are likely to raise premiums, especially for those who previously carried only the minimum required coverage.
How to save money on car insurance in California
Worried about your auto insurance premiums going up in California? Ruiz recommended several ways to lower your insurance costs:
- Shop around. “Prices vary from company to company, so it pays to shop around and get at least three price quotes from different types of insurance companies,” she says.
- Compare insurance costs before you buy a car. Car insurance premiums are partly based on the vehicle’s price, repair expense, overall safety record and the likelihood of theft.
- Request a higher deductible. “For example, increasing your deductible from $200 to $500 could reduce your collision and comprehensive coverage cost by 15 to 30%,” Ruiz says.
- Reduce coverage on older cars. Consider dropping collision and/or comprehensive coverage on older vehicles. “If your car is worth less than 10 times the premium, purchasing the coverage may not be cost-effective,” Ruiz says.
- Bundle your policies. If available, purchase homeowners and car insurance from the same insurer to qualify for a discount.
- Take advantage of low mileage discounts. Some insurers offer lower costs to motorists who drive fewer miles per year.
- Maintain good credit. Most insurers use credit information to price auto insurance policies.
- Seek out discounts. These include discounts for taking a defensive driving course, having a good student young driver, and maintaining a safe and clean driving record.
Final thoughts: Car insurance rate increases in California
Car insurance costs are on the rise nationwide. California residents can save money on car insurance by getting quotes from other insurance companies around renewal time and asking about discounts.
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Sources
- Consumer Watchdog. “Commissioner Lara Approves Over $1 Billion in Unjustified Auto Insurance Rate Hikes.” Accessed December 2024.
- Los Angeles Times. “California State Farm car insurance customers to see a $264-million rate increase.” Accessed December 2024.
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