Why Do Auto Insurance Rates Keep Going Up?
May 8th, 2023 – by Eric Lonsinger
Has your auto insurance premium gone up this year? If so, you are not alone. Many families are experiencing sticker shock when opening their renewal notices. In this article we’ll explore some of the reasons why rates are rising and provide a few recommendations on what you can do to keep your costs down.
Before we explore the specific forces driving auto insurance rates it’s worth mentioning the overall trend in rising costs in our daily lives. As you are likely aware, household expenses have increased across the board. Gas, electricity, housing, heating, food and grocery along with seemingly everything else is measurably more expensive today. There are plenty of resources out there explaining the economics behind it so we won’t rehash that here. In short, a combination of supply chain challenges, parts and labor shortages combined with rising inflation has impacted American’s wallets across the country.
Impact on Insurance Rates
The auto industry was one of the harder hit markets, and auto insurance is closely tied to the overall industry trends and costs. There are two forces converging here that are responsible for the bulk of the upward movement we’re seeing in rates:
#1 – Increased costs
As mentioned above, costs today are considerably higher than just a few years ago. When it comes to the impact on auto insurance rates there are two main considerations:
- The cost to repair vehicles due to supply chain issues and parts\labor shortages has risen by more than 4% over the last year.
- The cost to replace vehicles has risen even more drastically, with used car and truck prices clocking in at over 40% higher. This has been easing up somewhat in recent months but the elevated pricing is expected to continue.
Because of this an accident that cost $1,000 3 years ago may cost considerably more today.
#2 – Driving Behavior
Driving behavior changed drastically during the pandemic. Americans were driving less, leading to fewer accidents and lower costs for insurance companies. As a result many insurers reduced their rates and many issued refunds\credits to their customers.
Fast forward to today, Americans are back on the road, essentially returning to pre-pandemic levels. As a result we are seeing an increase in claims, resulting in increased costs and so insurers need revisit those rates that were previously discounted.
Bringing it All Together
These two forces combined lead to increased costs for auto insurance companies, it really is that simple. An auto insurer must make sure that the premiums they charge are sufficient to sustainability operate the business and pay customer claims.
In short – with an increase in costs, comes an increase in rates.
So while it may be easy to blame your insurance company for jacking up your rates, in the end it is necessary to ensure you are protected in the event of an accident.
The real culprit here is the broader economic environment which is driving the rise in costs. In that regard, it is essentially the same as paying more for eggs and milk – when it costs the farmer more to produce the egg they need to pass that increase onto the consumer, same goes here.
What You Can Do
While we can scream at the scoreboard all day long, it won’t help in the end but there are a few things you can do to potentially lower your costs.
1. Review your policy
The first thing you should do is review your policy for accuracy. Ensure the vehicles listed on the policy are correct and the drivers, use of the vehicle and miles driven per year are up to date and accurate.
2. Discounts and Programs
Next, explore the various discounts offered by your insurer. Not all companies offer the same discounts and there are too many to list here so it’s worth a call to your agent or company to ask what is available to you. For example, some companies offer good student discounts, others may provide a discount for no accidents, or even a good payment history. Many companies offer opt-in programs that can further reduce your premiums. A common example of this is vehicle telematics. This is when you consent to providing data on your driving behavior (usually through a connected vehicle or a plug in dongle). The company may then provide a discount when you exhibit safe driving habits like not speeding or braking hard.
3. Deductibles and Coverages
Modifying your coverage may lower your premium as well. While we generally don’t advise reducing your coverage there are certain situations where it makes sense. For example, if you insure a vehicle that is only driven seasonally (for example a sports car in the summer) you may opt to remove collision coverage during the winter months while it is in storage since it’s unlikely you’ll be in an accident while the vehicle is parked. Deductibles on the other hand, are a personal preference. Many people opt for higher deductibles (i.e. $1,000 or higher) in order to lower premiums knowing that they will end up paying out of pocket for smaller incidents.
4. Shop for alternatives
For potentially larger savings, shopping your policy out is generally your best bet. While this does come with a little leg work it can be well worth it. Just like hiring a contractor, it’s usually a good idea to get a few quotes to understand the options available to you. Auto rates fluctuate company to company and year to year so it never hurts to get an updated comparison.
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This content is for informational purposes only and not for the purpose of providing professional, financial, medical or legal advice. You should contact your licensed professional to obtain advice with respect to any particular issue or problem.