If you feel like the price of everything has skyrocketed over the past year, you’re not alone. The prices of the wide range of consumer goods rose unabated. Unfortunately, your car insurance premiums have not escaped this trend. However, you may not know it yet because interest rate increases usually happen when you renew your policy.
As with the economy in general, several factors combine to increase the cost of insuring your car more and more. In fact, it’s a perfect storm of reasons that push insurance prices up. Here we will present evidence for the interest rate increase and reveal many of those responsible. We’ll also do a bit of crystal balling to help you prepare for what’s to come and give you some tips to minimize the impact of rising insurance premiums.
Let’s do some research and see what happens.
Is car insurance getting more expensive?
In a word, yes. But rate increases are state-by-state and insurer-by-insurer. As the smoke clears, however, the increases will affect almost all drivers. 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 this writing is $1,771. For minimal coverage, the average drops to $545. Applying that 4.9% increase to those numbers brings the average annual rate for full coverage to $1,858 and $572 for minimum coverage, but that’s not the end of it. Read on to find out how much car insurance costs are likely to rise.
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What is comprehensive car insurance?
Each insurance company uses its own definition of comprehensive coverage. However, most agree that it includes collision liability, comprehensive liability for personal injury and liability for property damage. Some companies may also include Personal Injury Protection (PIP), uninsured motorist and other coverages in their “comprehensive” definition.
What is the minimum coverage for car insurance?
Minimum coverage may vary depending on your state and what is required to drive legally. Sometimes it is just civil liability for bodily injury and civil liability for property damage.
Why is my car insurance going up?
While it may appear that the rising cost of new and used cars fully explains the growing trends in auto insurance, several factors are responsible. We reached out to a data collection organization, the Insurance Information Institute (Triple-I), for their perspective on skyrocketing car insurance costs. We were surprised by some of what we learned.
With so many influences at play, trying to figure out exactly where the problem starts is difficult. All problems are connected in one way or another. Therefore, it becomes “the chicken or the egg” when it comes to determining what causes what. However, we list several factors below.
1. Higher car prices
The prices of new cars and used cars are abnormally high. Data from Kelley Blue Book’s parent company, Cox Automotive, shows that the average new vehicle transaction price in August 2022 increased 10.8% from August 2021. The average new vehicle transaction price Kelley Blue Book in the United States rose to $48,301, an increase of $4,712 from 12 months prior.
The prices of used cars have also increased. Kelley Blue Book closely tracks the prices buyers pay for used cars. There is a bit of magic in comparing prices year by year. It’s not quite an exact science. The good news is that year-on-year used car prices fell slightly from March to June 2022. However, they are still higher than a year ago by more than 11%.
Summary: The economics of these skyrocketing increases as they apply to insurance costs are pretty basic. As the prices of vehicles rise, so does the cost of insuring them.
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2. More expensive car spare parts
Rising demand (see below), supply chain disruptions and escalating metal costs are the “hat trick” for skyrocketing spare parts costs. These costs come on top of the cost of repairing a damaged car, pushing up insurance bills. According to some estimates, the cost of auto parts has increased by 7-20% this year alone.
However, the problem does not end with the rising cost of common spare parts. Today’s new cars are filled with increasingly sophisticated technologies and systems. Replacing high-tech components adds another level of cost to the repair equation.
Summary: The cost of auto parts has skyrocketed this year, increasing losses for insurers.
3. Increase in car accidents and deaths
According to Triple-I, the second quarter of 2022 was the fourth consecutive quarter of increases in traffic accidents, injuries and fatalities. More damage means greater losses for the insurance companies. As the frequency and severity of traffic accidents increases, so does the involvement of lawyers. In fact, there has been a sharp increase in liability losses.
Dale Porfilio, director of insurance at the Insurance Information Institute, said more lawsuits mean higher insurance payouts and higher premiums. “The increase in liability losses may reflect an increase in litigation as courts reopen with the abating of the COVID-19 pandemic,” he said.
Summary: Accidents continue to increase in frequency and severity, leading to more lawsuits and higher liability.
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4. In general, complaints are increasing
Your comprehensive insurance covers losses from natural disasters such as hurricane Ian, burglary, vandalism and theft. For example, claims for theft of catalytic converters are increasing nationwide. Each catalyst contains between $20 and $240 worth of rare metals, making it a popular target for thieves. Replacing the stolen converter and repairing damage caused by a thief who steals it can result in an insurance claim of up to $3,000 or more.
Summary: Thefts and other total claims are increasing.
5. A broken supply chain
Dwelling points in the supply chain have no direct impact on insurance premiums. They do, however, affect the price of new cars and spare parts.
It doesn’t matter which point in the supply chain you look at; things are not going well. There are many reasons for this – a depleted workforce from the COVID-19 pandemic, high fuel costs and changing demand. Additionally, an over-reliance on “just-in-time” inventory management, leaving many industries suffering from a supply disruption of more than a few days. Many providers were down for months, not days. Since then, it’s been a game of catch-up.
Currently there is a shortage of truckers, dock workers and cargo ships.
Summary: You can at least partially blame high car prices and expensive parts on a broken supply chain.
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Will Your Car Insurance Premium Go Up?
The news here is not good. Over the past two years, the ratio of the money car insurance companies pay out in claims to what they earn in premiums has increased. According to data from the Insurance Information Institute, in 2020 auto insurance companies paid an average of about $0.93 for every dollar of premium. This translated into paying $1.02 for every award dollar in 2021. For the second quarter of 2022, this ratio further worsened to $1.05 paid in claims for every award dollar received.
According to the latest industry results, auto insurance rates for Triple-I projects are set to increase another 5-10% over the next year.
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5 steps to lower your car insurance premium
Just because you’re likely in line for a big rate hike next year doesn’t mean you don’t have options. You can take steps to lower your premium, even in the face of impending increases.
- Compare the prices: Some insurance companies are simply more expensive than others. In this market, you need to cut costs where you can. Do some research. There’s probably a better deal out there.
- Collect your coverage: Many insurance companies offer customers discounts if they have more than one policy with the company. Home and auto coverage are two common policies that most companies will bundle and discount.
- Increase the deductible: Setting a higher deductible for claims will almost always result in a lower premium. Talk to your insurance company to determine a deductible you can afford to pay while lowering your rate.
- Reduce coverage: This is a suggestion for drivers of older cars. If your vehicle is older and depreciated, you may want to consider reducing or eliminating collision coverage. The same applies to full coverage. Find the current market value of your car. If the book value is low, you may be better off putting those bonuses into a savings account for another trip.
- Maintain good credit: Insurance companies look at credit scores when assessing a driver’s risk. A low credit score alerts an insurer that you are more likely to make a claim. This is especially true if you have a low or no deductible.
This story originally took place on KBB.com.