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- Higher car prices contributed to higher car insurance premiums
- Hurricane Ian and other extreme weather events contributed to the increase
- Catalytic converter spikes and car theft
- Rate hikes vary by state and insurer
- Maintaining good credit can keep your car insurance rates low
If you’ve felt that everything has skyrocketed in price over the past year, you’re not alone. Prices for a vast array of consumer goods are rising relentlessly. Sadly, your car insurance premium has not escaped this trend. However, premium increases are usually made at policy renewal, so you may not be aware of them yet.
As with the economy in general, several factors combine to make car insurance more expensive than ever. In effect, this is a complete storm of causes pushing up insurance rates. Here we provide evidence of the rising rate and reveal many of the culprits responsible. We’ll also take a little look at the crystal ball to offer tips on minimizing the impact of rising insurance premiums in preparation for what’s to come.
Let’s do some research and see what’s going on.
Related: How to buy car insurance: everything you need to know
Is car insurance going up?
In a nutshell, yes. However, rate increases are state-by-state and insurer-by-insurer-by-insurer. However, when the smoke clears, nearly all drivers are affected. Bankrate recently reported that auto insurance rates have risen by an average of 4.9% nationwide.
Bankrate also reports that the average cost of full-coverage car insurance at the time of this writing is $1,771. For the lowest 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 the minimum coverage to $572, but that’s not all. Read on to learn how much your car insurance costs can increase.
What is full car insurance coverage?
Each insurance company uses its own definition of what is full coverage. However, most agree that collision, all-inclusive, bodily injury liability, and property damage liability are included. Some companies may also include Personal Injury Protection (PIP), uninsured drivers, and other coverages in their “full” definition.
What is the minimum coverage for car insurance?
Minimum coverage varies by state and what you need to legally drive. In some cases, liability for personal injury and property damage may be the only liability.
Related: Penalties for Driving Without Auto Insurance by State
Why are car insurance premiums going up?
While rising new and used car costs may appear to fully explain the upward trend in auto insurance, it is due to several factors. We contacted the insurance information institute (Triple-I), a data aggregator, to investigate the skyrocketing cost of auto insurance. We were amazed at some of the things we learned.
With so many influences at work, it’s difficult to try to pinpoint where the problem starts. All issues are related in some way. So when it comes to determining what’s causing it, it’s going to be “chicken or egg first.” However, here are some factors:
Related: Common car insurance myths to avoid
1. Increase in vehicle prices
Both new and used cars are extremely expensive. Data from Cox Automotive, the parent company of the Kelley Blue Book, shows that the average transaction price of a new car in August 2022 was up 10.8% compared to his August 2021. The average transaction price for a new Kelley Blue Book in the US rose to $48,301, $4,712 higher than the 12. A few months ago.
Used car prices are also soaring. Kelley Blue Book closely monitors the prices buyers pay for used cars. There’s a little magic involved in year-over-year price comparisons. It’s not an exact science. The good news is that in 2022, used car prices fell significantly from March to June year-over-year.
Overview: The economics of these staggering increases as they apply to insurance costs are fairly basic. As the price of the car increases, so does the insurance premium.
2. Expensive car replacement parts
Increased demand (see below), supply chain disruptions, and high metal prices are the ‘hat tricks’ of soaring replacement parts prices. These costs add to the cost of repairing a damaged vehicle and drive up insurance payouts. According to some estimates, the cost of auto parts has risen by 7% to 20% this year alone.
But the problem goes beyond the rising cost of common replacement parts. Today’s new cars are equipped with increasingly advanced technologies and systems. Replacing tech parts adds another level of cost to the repair equation.
Overview: The cost of replacement parts for cars has surged this year, adding to losses for insurers.
3. More car accidents and fatalities
According to Triple-I, the second quarter of 2022 marked the fourth consecutive quarter of increases in traffic accidents, injuries and fatalities. More claims lead to bigger losses for insurance companies. Additionally, as the frequency and severity of traffic accidents increase, so does the involvement of attorneys. In fact, liability losses are skyrocketing.
Dale Porfirio, chief insurance officer at the Insurance Information Institute, said more lawsuits mean more claims and higher premiums. “The rise in liability losses may reflect an increase in litigation as courts reopen as the COVID-19 pandemic fades,” he said.
Overview: The frequency and severity of accidents continues to increase, resulting in more lawsuits and more liability settlements.
4. Increase in generic claims
Comprehensive insurance covers losses from natural disasters such as Hurricane Ian, break-ins, vandalism and theft. For example, claims for theft of catalytic converters are very high nationwide. Each catalytic converter contains between $20 and $240 of rare metals, making them easy targets for thieves. In total, replacing the stolen converter and repairing any damage the thief stole the converter could result in an insurance claim on him of over $3,000.
Overview: Theft and other blanket claims are on the rise.
5. Broken Supply Chain
Supply chain chokepoints do not directly affect premiums. However, it does affect the price of new cars and replacement auto parts.
It doesn’t really matter which point in the supply chain you study. Things don’t go smoothly. There are many reasons for this, including labor shortages due to the COVID-19 pandemic, rising fuel costs, and changing demand. In addition, over-reliance on “just-in-time” inventory management has resulted in many industries suffering outages of several days or more. Many suppliers were down for months instead of days. Since then it has been a game of catch-up.
There is currently a shortage of truck drivers, dock workers and freighters.
Overview: Higher vehicle prices and expensive replacement parts can be attributed, at least in part, to supply chain disruptions.
Will car insurance premiums go up?
The news here is not good. Over the last two years, the ratio of what auto insurers pay in claims to what they earn in claims has increased. According to Insurance Information Institute data, in 2020 auto insurers paid an average of about $0.93 for every $1 of premium. In 2021, $1.02 was paid for every $1 of premium. In the second quarter of 2022, the ratio was even worse, with claims paid at $1.05 for every dollar of premium received.
Based on recent industry results, Triple-I predicts that auto insurance rates will need to increase by another 5% to 10% next year.
Related: Facts about car insurance you may not know
5 steps to lower your car insurance premium
The prospect of a big rate hike next year doesn’t mean you have no options. Even if a price increase is imminent, you can still take steps to lower your premiums.
- to shop: Some insurance companies simply charge more than others. In this market, we need to reduce costs wherever possible. Do some research. There are probably better deals out there.
- Bundle coverage: Many insurance companies offer discounts to their customers if they have multiple policies with the company. Home insurance and auto insurance are two common policies that most companies bundle and discount.
- Increase your deductible: Setting a higher deductible on your claim will almost always result in a lower premium. Talk to your insurance company to determine how much deductible you can afford while lowering your rates.
- Reduce coverage: This is a proposal aimed at drivers of older cars. If your vehicle is older and has paid off, you may consider reducing or eliminating your collision coverage. The same applies to comprehensive coverage. Research the current market value of your vehicle. If the book value is low, it may be better to keep those premiums in your savings account for new rides.
- Maintain good credit: Insurance companies look at credit scores when evaluating a driver’s risk. If you have a low credit score, insurance companies warn you that you are more likely to file a claim. This is especially true if you have a policy with a low or no deductible.
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