If you feel like the price of everything has skyrocketed over the past year, you’re not alone. Prices for the wide range of consumer goods have ticked up incessantly. Unfortunately, your auto insurance premiums have not escaped this trend. You may not know, however, as rate increases usually occur when you renew your policy.
As with the economy in general, several factors conspire to drive the cost of insuring your car ever higher. In fact, it’s a perfect storm of causes that drives up insurance rates. Here we will provide evidence of rising interest rates and uncover many of those responsible. We’ll also take a quick look into the crystal ball to prepare you for what’s to come and share some tips on how to minimize the impact of rising insurance premiums.
Let’s do a little detective work and see what’s going on.
Is car insurance getting more expensive?
In a word, yes. Rate increases, however, occur from state to state and carrier to carrier. When the smoke clears, however, the increases will affect almost every driver. Bankrate recently reported that auto insurance rates are increasing by an average of 4.9% nationwide.
Bankrate also reports that the average cost of comprehensive auto insurance at the time of writing is $1,771. At minimum coverage, the average drops to $545. Applying that 4.9% increase to those numbers, the average annual rate for full coverage is $1,858 and $572 for minimum coverage — but that’s not all. Read on to learn how much more car insurance costs are likely to increase.
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What is fully comprehensive car insurance?
Each insurance company uses their own definition of what comprehensive insurance is. However, most agree that this includes collision, collision damage waiver, personal injury and property damage liability. Some companies may also include personal injury protection (PIP), uninsured motorists, and other coverages in their “full” definition.
What is the minimum coverage for car insurance?
Minimum coverage may vary by state and legal driving requirements. Sometimes it’s just about personal injury and property damage.
Why is my car insurance going up?
While it may seem that the rising cost of new and used cars fully explains the increasing trends in auto insurance, several factors are responsible. We contacted a data collection organization, the Insurance Information Institute (Triple-I), to help absorb the rising cost of car insurance. We were surprised by some findings.
With so many influences in play, it’s difficult to pinpoint exactly where the problem begins. All problems are somehow related. Consequently, it becomes “the chicken or the egg” when it comes to determining what causes what. However, below we list some factors.
1. Higher car prices
The prices for new cars and used cars are unusually high. Data from Kelley Blue Book’s parent company, Cox Automotive, shows that the average transaction price for new vehicles increased by 10.8% in August 2022 compared to August 2021. Kelley Blue Book’s average transaction price for new vehicles in the United States rose to $48,301, up $4,712 from 12 months earlier.
Used car prices have also skyrocketed. Kelley Blue Book closely monitors the prices buyers pay for used cars. There’s a little magic in comparing prices year-on-year. It’s not quite an exact science. The good news is that used car prices fell measurably year-on-year from March to June 2022. However, they are still more than 11% higher than a year ago.
Summary: The economics of these staggering increases in insurance costs are fairly simple. As vehicle prices rise, so do insurance costs.
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2. Higher priced auto parts
Increased demand (see below), supply chain failures and escalating metal costs are the “hat trick” of rising spare parts costs. These costs add to the cost of repairing a damaged car, driving up insurance bills. By some estimates, the cost of auto parts has increased between 7% and 20% this year alone.
However, the problem does not end with the increase in the cost of common spare parts. Today’s new cars are packed with increasingly sophisticated technologies and systems. Replacing high-tech components adds another layer of cost to the repair equation.
Summary: The cost of auto parts rose this year, contributing to insurance carrier losses.
3. Increase in car accidents and deaths
According to Triple-I, the second quarter of 2022 was the fourth consecutive quarter of rising traffic accidents, injuries and fatalities. More claims result in greater losses for insurance carriers. In addition, as traffic accidents become more frequent and serious, the involvement of lawyers increases. In fact, there has been a large increase in liability claims.
Dale Porfilio, the Insurance Information Institute’s chief insurance officer, said more lawsuits mean higher insurance payouts and higher premiums. “Increased liability losses may be due to increased litigation as courts reopen as the COVID-19 pandemic abates,” he said.
Summary: The frequency and severity of accidents continues to increase, resulting in more litigation and higher liability regimes.
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4. Flat rate claims increase
Your comprehensive insurance covers damage caused by natural disasters such as Hurricane Ian, burglary, vandalism and theft. Nationwide, for example, lawsuits for catalytic converter theft are increasing. Each catalyst contains between $20 and $240 in rare metals, making them a popular target for thieves. Replacing the stolen converter and repairing any damage caused by a thief can result in an insurance claim of up to $3,000 or more.
Summary: Theft and other fully comprehensive claims are increasing.
5. A broken supply chain
Bottlenecks in the supply chain do not directly affect insurance premiums. However, they affect the price of new cars and car parts.
It doesn’t matter much which point in the supply chain you’re examining; it’s not going well. There are many reasons for this — an exhausted workforce due to the COVID-19 pandemic, high fuel costs, and shifting demand. Add to that an over-reliance on “just-in-time” inventory management, leaving many industries vulnerable to a supply disruption of more than a few days. Many suppliers were down for months, not days. It’s been a catch-up game since then.
There is currently a shortage of truck drivers, port workers and cargo ships.
Summary: High car prices and expensive spare parts can at least partly be attributed to a broken supply chain.
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Is your car insurance premium going up?
The news here is not good. In the past two years, the ratio of money auto insurance carriers pay out in claims to what they earn in premiums has grown. According to the Insurance Information Institute, auto insurers paid out an average of about $0.93 for every dollar in premiums in 2020. This resulted in a payout of $1.02 for every bounty dollar received in 2021. For the second quarter of 2022, that ratio deteriorated even more to $1.05 paid for every bounty dollar received.
Based on the latest industry results, Triple I projects’ auto insurance rates need to increase another 5% to 10% over the next year.
also read: What California’s Gas Car Ban Could Mean For You — Even If You Don’t Live There
5 steps to lower your car insurance premium
Just because you’re likely lined up for a hefty rate hike next year doesn’t mean you don’t have options. Even if increases are imminent, you can take steps to lower your premium.
- Shopping spree: Some insurance policies are simply more expensive than others. In this market you need to cut costs wherever you can. research. There’s definitely a better deal out there.
- Bundle your coverage: Many insurers offer discounts to customers if they have more than one policy with the company. Home and car insurance are two common policies that most companies bundle and discount.
- Increase in deductible: Setting a higher deductible for claims almost always results in a lower premium. Discuss it with your insurance company to determine a deductible you can afford to pay out while lowering your rate.
- Reduce Coverage: This is a suggestion aimed at drivers of older cars. If your vehicle is older and paid off, you may consider reducing or eliminating accident insurance. The same applies to comprehensive insurance. Research the current market value of your car. If book value is low, you might be better off putting those rewards into a savings account for a new ride.
- Maintain good credit: Insurance companies check creditworthiness when assessing a driver’s risk. A low credit score warns an insurer that you are more likely to make claims. This is especially true if you have a low or no deductible policy.
This story originally continued KBB.com.