Auto insurance premiums dropped by 6% in 2025, expected to increase slightly in 2026
While the average annual full-coverage auto insurance premium dropped 6% nationally in 2025, Insurify projects it will increase 1% in 2026.
The decrease comes after the average cost of insurance rose 46% from 2022 to 2024, Insurify’s newest report says.
Thirty-nine states saw their prices fall, including eight states with decreases of 15% or more, the report says.
However, not every state saw a decline. Four states had double-digit cost increases in 2025, including New Jersey, where rates increased by an average of 20%. Others that saw large increases include D.C. (18%), Rhode Island (13%), and Michigan (12%).
“Washington, D.C., has the highest average full-coverage car insurance rates nationwide, with drivers paying nearly double the national annual average ($4,017 vs. $2,144),” the report says.
This year, Insurify predicts car insurance costs will likely increase in 35 states and fall in 15. The predicted nationwide 1% increase would increase the national annual average from $2,144 to $2,158.
Insurance companies used the elevated premiums to improve their financial footing, helping the industry absorb tariff-driven costs without raising prices, according to the report. Yet, the report notes that the full effects of tariffs have not hit repair costs.
“Now, many insurers are cutting rates to attract and retain new customers,” the report says.
The rate drops come at a time when J.D. Power says the companies are starting to feel the consequences of gradual but consistent premium hikes.
“Faced with bigger bills, customers have come to expect more from their insurers,” J.D. Power wrote in a recent article. “Now more than ever, insurers that fail to provide compelling offers to customers will send them rushing into the waiting arms of a company that will.”
J.D. Power found that the percentage of customers who shopped for auto insurance reached a record-high level of 57% in 2025, up from 49% in 2024.
State Farm announced in November that millions of customers would see rate reductions.
“The costs of auto and home ownership are rising. Insurance rates have spiked across the U.S. due to surging replacement costs, inflation, supply chain disruptions, and more frequent severe weather catastrophes,” a State Farm press release says. “We know that price matters as much as service. As a result, regular rate reviews and adjustments are necessary to help keep insurance coverage available and affordable for our customers.”
The release notes that less costly physical damage claims have allowed the insurance company to lower its rates.
State Farm does not provide details about how physical damage claims have become less costly.
The insurance company has received national attention for a series of lawsuits in multiple states that claim it uses software to undervalue actual cash values.
Fender Bender and CRASH Network also recently reported on surveys that show shops have seen State Farm reduce labor rates.
In July, Fender Bender reported that 57% of 230 survey respondents said State Farm had reduced the labor rates offered to their shops without explanation.
A CRASH Network “Collision Industry Business Perspectives” survey found that 1 in 4 of 300 shop respondents said one insurance company is currently paying a lower labor rate than it was back in January.
“State Farm was the most common insurer cited by survey respondents, and the labor rate decreases weren’t insignificant,” Yoswick said while sharing some of the survey findings with RDN earlier this month.
“State Farm went from $60 per hour to $55 per hour, and we are not a DRP for them,” one shop wrote of the 8.3% drop.
Without naming the insurance company, an open mic session at a Collision Industry Conference (CIC) meeting held in November sparked discussion about its systemic lowering of labor rates.
Last month, Andrew Batenhorst, Pacific Collision Center repair manager, took to the mic at CIC and said he’s seen a 40% to 50% increase in out-of-pocket expenses for parts, labor, and materials not approved by an adjuster since October. He said nothing has significantly changed at his shop during that time period, including the mix of work, repair planning, damage assessment style, or a large increase in operational costs.
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