Over the past few decades, the consumer auto insurance industry has become a lot more competitive. In addition to the emergence of new companies that offer car insurance, the entire process for obtaining coverage and/or a quote has become simpler, faster, and more convenient for Americans. And with so many insurers advertising low prices for auto insurance, you’d think that the cost of premiums would be dropping.

In fact, the average cost of car insurance is getting higher, not lower. The Insurance Information Institute reported that from 2008 to 2010, auto insurance rates jumped by an average of 10% , and then rose another 4% in 2011. Altogether, average auto insurance costs have skyrocketed 31% since 2000.

This seems to go against everything that Americans’ learned in their economics classes. If supply has increased, then why aren’t costs decreasing?

The reason is because the actual costs associated with paying claims have risen dramatically over the past decade or so.