The cost of car insurance keeps rising and it’s likely to get worse – here’s why

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 rose unabated. Unfortunately, your car insurance premiums have not escaped this trend. However, you may not know this yet because rate increases usually happen when you renew your policy.

As with the economy in general, several factors combine to drive up the cost of insuring your car more and more. Indeed, it’s a perfect storm of causes that are pushing insurance rates up. Here we will provide evidence of the rate hike and reveal many of the culprits responsible. We’ll also do a bit of a crystal ball to help you prepare for what’s to come and give you some tips for minimizing the impact of rising insurance premiums.

Let’s do some research and see what happens.

Is auto insurance getting more expensive?

In a word, yes. However, 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 rising an average of 4.9% nationwide.

Bankrate also reports that the average cost of full-coverage 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.

Also see: Inflation puts pressure on families with young children who struggle to meet the weekly food bill

What is comprehensive auto insurance coverage?

Each insurance company uses its own definition of comprehensive coverage. However, most agree that it includes collision liability, comprehensive bodily injury liability, and property damage liability. 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 simply civil liability for bodily injury and civil liability for property damage.

Why is my car insurance increasing?

While it may seem that the rising cost of new and used cars fully explains the growing trends in car insurance, several factors are responsible. We reached out to a data collection organization, the Insurance Information Institute (Triple-I), for their perspective on soaring car insurance costs. We were surprised by some of what we learned.

With so many influences at play, trying to pinpoint exactly where the problem is starting is tricky. All problems are related 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 transaction price for new vehicles in August 2022 increased 10.8% from August 2021. The average transaction price for new vehicles Kelley Blue Book in the US rose to $48,301, up $4,712 from 12 months prior.

Used car prices have also increased. Kelley Blue Book closely monitors the prices buyers pay for used cars. There is a bit of magic in comparing prices year over year. It’s not quite an exact science. The good news is that year-over-year used car prices were down slightly from March to June 2022. However, they are still higher than a year ago by more than 11%.

Summary: The economics of these sky-high increases as they apply to insurance costs is pretty basic. As vehicle prices rise, so does the cost of insuring them.

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2. More expensive car spare parts

Rising demand (see below), supply chain outages and escalating metal costs are the “hat trick” of soaring spare part costs. These costs are on top of the cost of repairing a damaged car, pushing insurance settlements up. According to some estimates, auto parts costs have 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 loaded with ever more sophisticated technologies and systems. Replacing high-tech components adds another level of cost to the repair equation.

Summary: Costs for auto replacement parts have skyrocketed this year, adding to losses for insurance companies.

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 claims mean bigger losses for insurers. Moreover, as the frequency and severity of traffic accidents increase, 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 waning COVID-19 pandemic,” he said.

Summary: Accidents continue to increase in frequency and severity, leading to more litigation and higher liability settlements.

Also see: “The mood has darkened”: Desperate to outrun inflation, people are changing their habits dramatically (and easily). You can also.

4. Overall 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 on the rise nationwide. Each catalytic converter contains between $20 and $240 worth of rare metals, making it a popular target for thieves. Replacing the stolen converter and repairing any damage caused by a thief stealing it can result in an insurance claim of up to $3,000 or more.

Summary: Thefts and other aggregate claims are on the rise.

5. A broken supply chain

Choke points in the supply chain have no direct impact on insurance premiums. However, they affect the price of new cars and spare parts.

It doesn’t matter what point in the supply chain you are looking at; things are not going well. There are many reasons for this – an exhausted workforce from the COVID-19 pandemic, high fuel costs and shifting 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 catch-up game.

Currently, there is a shortage of truckers, dockers and freight ships.

Summary: You can at least partly blame high car prices and expensive spare parts on a broken supply chain.

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Will your auto insurance premium go up?

The news here is not good. Over the past two years, the ratio of the money auto insurers pay out in claims to what they earn in premiums has increased. According to data from the Insurance Information Institute, in 2020, on average, auto insurers paid about $0.93 for every dollar in premium. This translated into paying $1.02 for every premium dollar in 2021. For the second quarter of 2022, this ratio deteriorated even further to $1.05 paid in claims for every premium dollar received.

According to recent industry results, auto insurance rates for Triple-I projects will need to increase another 5-10% over the next year.

Read also: What California’s gas-powered 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 probably 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.

  1. Compare the prices: Some insurance companies are simply more expensive than others. In this market, you need to cut costs wherever you can. Do some research. There’s probably a better deal out there.
  2. Bundle your coverage: Many insurers 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.
  3. 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 that you can afford to pay while lowering your rate at the same time.
  4. Reduce coverage: This is a suggestion for drivers of older cars. If your vehicle is older and depreciated, you may consider reducing or eliminating collision coverage. The same goes for full coverage. Find the current market value of your car. If the book value is low, you might be better off putting those bonuses in a savings account for a new ride.
  5. Maintain good credit: Insurance companies look at credit scores when assessing a driver’s risk. A low credit score warns an insurance underwriter that you are more likely to make claims. This is especially true if you have a low or no deductible policy.

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