- Higher car prices led to higher car insurance
- Hurricane Ian and other extreme weather contributed to increases
- Spike in catalytic converter and car thefts
- Rate increases vary by state and insurer
- Maintaining good credit will help keep auto insurance rates down
If you feel like the price of everything has skyrocketed in the past year, you’re not alone. Prices of the wide range of consumer goods have risen relentlessly. Unfortunately, your car insurance premiums have not escaped this trend. You may not know it yet because rate hikes usually hit when you renew your policy.
As with the economy in general, several factors conspire to drive up the cost of insuring your car. In fact, it’s a perfect storm of causes that squeeze insurance rates. Here we will provide evidence for rising rates and reveal many of the culprits responsible. We also take a little look at the crystal ball to prepare you for what’s to come and provide some tips for minimizing the impact of rising insurance premiums.
Let’s do some detective work and see what’s going on.
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Is car insurance getting more expensive?
In a word, yes. However, rate increases are by state and by insurer. However, when the smoke clears, increases will affect almost every driver. Bankrate recently reported that auto insurance rates are rising by an average of 4.9% nationwide.
Bankrate also reports that the average cost for full coverage auto insurance is $1,771 at the time of writing. For minimum 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 more auto insurance costs are likely to rise.
What is Full Coverage for Auto Insurance?
Each insurance company has its own definition of what constitutes full coverage. However, most agree that it includes liability for collision, comprehensive liability for bodily injury, and liability for property damage. Some companies may also include personal injury protection (PIP), uninsured motorist, and other coverage in their “full” 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 only liability for personal injury and liability for property damage.
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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, there are several factors responsible for this. We reached out to a data-gathering organization, the Insurance Information Institute (Triple-I), for its take on skyrocketing auto insurance costs. We were surprised by some of what we learned.
With so many influences at play, it’s hard to pinpoint exactly where the problem starts. All problems are somehow related to each other. Consequently, it becomes “the chicken or the egg” in determining what causes what. However, we list a number of factors below.
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1. Higher car prices
Prices for new cars and used cars are abnormally high. Data from Cox Automotive, the parent company of Kelley Blue Book, shows that the average transaction price for new vehicles in August 2022 increased by 10.8% compared to August 2021. Kelley Blue Book’s average new vehicle transaction price in the U.S. has risen to $48,301, which is $4,712 more than 12 months prior.
Used car prices also skyrocketed. Kelley Blue Book keeps a close eye on the prices buyers pay for used cars. There’s a bit of magic involved in comparing year-over-year prices. It’s not quite an exact science. The good news is that used car prices have dropped measurably on an annualized basis from March to June 2022. However, they are still more than 11% higher than a year ago.
Overview: The economics of these staggering increases, as they apply to insurance costs, are quite simple. As car prices rise, so does the cost of insuring them.
2. Higher automotive replacement parts
Increased demand (see below), supply chain disruptions and rising metal costs are the “hat trick” of the skyrocketing cost of replacement parts. These costs add to the cost of repairing a damaged car, driving up insurance schemes. According to some estimates, the cost of auto parts has increased by 7% to 20% this year alone.
However, the problem does not end with the rise in the cost of commonly used replacement parts. Today’s new cars are packed with increasingly sophisticated technologies and systems. Replacing high-tech components adds another level of cost to the repair equation.
Overview: The cost of replacement auto parts rose this year, adding to insurance company losses.
3. Increase in car accidents and fatalities
According to Triple-I, the second quarter of 2022 was the fourth consecutive quarter with increasing traffic accidents, injuries and deaths. More claims translate to bigger losses for insurance companies. In addition, as the frequency and severity of traffic accidents increase, the involvement of lawyers also increases. In fact, there is a big spike in liability losses.
Dale Porfilio, the chief insurance officer of Insurance Information Institute, said more lawsuits mean higher insurance payouts and higher premiums. “Increased liability losses may reflect increased litigation as courts reopen with the COVID-19 pandemic abating,” he said.
Overview: Accidents continue to increase in frequency and severity, resulting in more lawsuits and higher liability settlements.
4. Expanded claims are on the rise
Your comprehensive insurance covers losses from natural disasters such as Hurricane Ian, burglaries, vandalism and theft. For example, catalytic converter theft claims are high across the country. Each catalytic converter contains between $20 and $240 worth of rare metals, making them a popular target for thieves. Replacing the stolen converter and repairing all damage caused by a thief who stole it can add up to an insurance claim of up to $3,000 or more.
Overview: Thefts and other extensive claims are on the rise.
5. A broken supply chain
Bottlenecks in the supply chain do not directly affect insurance premiums. However, they do affect the price of new cars and replacement car parts.
It doesn’t really matter which point in the supply chain you study; things are not running smoothly. There are many reasons for this: a depleted workforce due to the COVID-19 pandemic, high fuel costs and changing demand. Plus, relying too much on “just in time” inventory management, leaving many industries the victim of a supply disruption of more than a few days. Many suppliers were down for months, not days. Since then it has been a catch-up game.
Currently there is a shortage of truck drivers, dockers and freighters.
Overview: You can blame high car prices and expensive replacement parts at least in part for a broken supply chain.
Will your car insurance premium go up?
The news here is not good. Over the past two years, the ratio of the money auto insurance companies pay out on claims to what they earn in premiums has increased. Auto insurers paid an average of about $0.93 for every premium dollar in 2020, according to data from the Insurance Information Institute. That changed to paying out $1.02 for every premium dollar in 2021. For the second quarter of 2022, that ratio worsened even more to $1.05 paid in claims for every premium dollar received.
Based on recent industry results, auto insurance rates on Triple-I projects should increase another 5% to 10% over the next year.
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5 steps to lower your car insurance premium
Just because you’re likely to qualify for a hefty rate increase in the coming year doesn’t mean you don’t have options. You can also take steps to lower your premium in the event of imminent increases.
- Shop: Some insurers are simply more expensive than others. In this market you need to cut costs wherever possible. Do some research. There is probably a better deal.
- Bundle your coverage: Many insurers offer discounts to customers if they have more than one policy with the company. Home and car coverage are two common policies that most companies bundle and discount.
- Increase the deductible: Setting a higher deductible for damage almost always leads to a lower premium. Talk to your insurance company to determine a deductible you can afford to pay out while lowering your rate at the same time.
- Decrease Opacity: This is a suggestion aimed at drivers with older cars. If your vehicle is older and paid off, you may want to consider lowering or eliminating collision coverage. The same goes for comprehensive coverage. Research the current market value of your car. If the book value is low, you may want to put those premiums in a savings account for another ride.
- Have a good credit rating: Insurance companies look at credit scores when evaluating a driver’s risk. A low credit score alerts an insurer that you are more likely to make claims. This is especially true if you have a low or no deductible policy.