Why Are Auto Insurance Rates Rising?

Lately we haven’t been able to catch a break with problems affecting every person and business. There is no escaping from an issue like inflation, which appears to be the main reason driving car insurance costs at the moment. Many motorists are surprised to see that their renewal quotes are coming high and it may be unacceptably high if you are a high-risk driver and your provider is trying to offload you. Good drivers with great credit scores may not be affected as much.

According to a report, automobile insurance rates increased 9% across the US in 2022 and it is likely to follow its upwards trajectory in 2023 and go up another 7%. The same report suggests that we should see an end to this cycle by the end of the year. Looking at the latest quotes, this appears to be just about right.

Also, according to another report from Progressive, auto accident claims are increasing, which is adding extra pressure on providers to replenish their already depleted reserves with vehicle insurance premium increases. They also report that vehicle repair and maintenance costs have gone up 6.3% and used auto prices spiked as much as 41% at some point. It is a relief that second hand car prices are now coming down a bit.

When there are so many strong forces, your car insurance costs are going to go up even if you have notched another accident and traffic ticket free year on your belt.

However, the situation isn’t as hopeless as it sounds and many motorists are actively searching for lower prices. Many surveys show the number of policyholders shopping around for cheaper auto insurance quotes is on the up and many of them confirm that the renewal premium increase was the main reason for looking.

This price change in the market leads to another trend as well. In the past, not only did a lower number of motorists shop around but also they didn’t switch easily even if they found a better price. According to the latest survey by J.D. Power, about 90% of policyholders who shopped and found a better price switched their car insurers. That is a very high number suggesting consumers are desperately looking to reduce their costs wherever they can.

When you are shopping around for cyclical expenses like insurance you should know that once you manage to lower your premium now you are likely to get cheaper renewal quotes in the future as well since you would be insured by a more competitive carrier. This doesn’t mean that you should stop checking. You should continue checking prices at least once a year to make sure your rates are still competitive.

Here are some of the external factors forcing car insurers’ hands to raise premiums across the board and totally out of motorists’ control.

Inflation causes prices to go up in almost all products and services and this results in an indirect domino effect on every business’s bottom line and turns into a catch-up game. Suddenly, prices can turn into a snowball forcing everyone to pile up the prices. With current inflation rates at around 8%, there is no escaping from this pressure.

Higher number of claims reported in the industry couldn’t have come at a worse time. Increased repair costs add salt to injury. Due to stretched budgets, motorists tend to claim for things that they wouldn’t have claimed in good financial times and pay out of pocket.

Auto repair costs are the main expense for insurance companies so they cannot ignore the cost pressures due to increased wages and parts. Currently, the world is facing many shortages along with expensive parts. This increases the time vehicles remain in the garages, all the while costing money.

Increased second hand car prices mean insurers have to pay more when they total a vehicle due to Actual Cash Values going up. This was a huge problem in 2022 with used auto prices shooting up 41%. This is something no actuary would have predicted and therefore they ended up charging less than they should have for the premiums in the previous year. So, they need to make up the losses by increasing car insurance premiums even more.

Overshooting effect is a phenomenon in force. Once underwriters fail to predict things like inflation, used car prices, higher claims and repair costs they may overshoot this time and add an extra buffer in their auto insurance quotes for any other unforeseen occurrences and apparent uncertainty in the inflation’s trajectory.