Inflation may be cooling, but car insurance rates are revving up. Here's why.

Kayla Mills spent most of this year driving a Honda HRV, but last month she decided to return the vehicle to the dealership. Her reason? The $520 a month car insurance bill no longer fit her budget.

"I can pay it, but being able to afford it while also affording the rising costs of everything else going on, I made an executive decision to let go of my car," the Massachusetts resident said.

Mills isn't the only one feeling the pinch of car insurance payments. Not only has overall inflation grew 3% in June compared with a year ago, but auto insurance has gone up a whopping 19.5%, according to the most recent Consumer Price Index data. The national average for full coverage car insurance is nearly $2,300 a year as of July, or $190 a month, according to data from personal finance website Bankrate.

But it wasn't the increase alone that bothered Mills. She said she ultimately returned the HRV because her insurance increased without explanation from her provider. So what was the reason for the rate increase?

According to one insurance expert, there are three reasons why auto rates are going up, even if your own driving record hasn't changed.

Inflation hits car insurance

First, the cost insurance providers pay to repair vehicles after an accident — like mechanic hours and car parts — has increased more than 40%, said Dale Porfilio, chief insurance officer at the nonprofit Insurance Information Institute. Insurers are starting to pass more of those costs onto policyholders, he said.

"You also have the fact that people's behavior got riskier during the pandemic," Porfilio said. "So, you think about things like speeding, drunk driving, all those characteristics got worse during the pandemic — our own behavior got riskier."

The third reason insurance rates are climbing: Lawyers are increasingly involved in settling accident claims.

"In general, when you have increased attorney involvement, you actually end up with a higher payout from the insurance company, but a lower payout coming to the injured parties and the claims," Porfilio said.

Dent in summer car buying season

Car buying activity typically picks up during the spring and summer months, experts said, as customers like to stroll dealership lots in warmer weather. But rising auto insurance rates are starting to threaten what's typically a fruitful season for automakers.

Gas prices and regular maintenance on a vehicle — like getting the oil changed or the tires rotated — are also weighing down household budgets. A Bank of America survey from March found that Americans feel vehicle maintenance and loans are two of the top five most difficult household expenses to afford.

Drivers should expect auto insurance rates to continue climbing the rest of this year, Porfilio said, adding that although prices should stabilize in 2025, exactly when will vary from company to company.

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