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Why Personal Auto Insurance Rates are Climbing

Auto insurance premium rates have returned to pre-Covid pandemic levels, and several trends will likely push rates even higher, according to insurance experts.

At the start of the pandemic, when governments ordered people to stay home, auto insurers gave back nearly $14 billion to policyholders through cash refunds and account credits. However, accident frequency and severity are increasing again, with traffic fatalities rising in 2021.

According to data from the CDC and National Highway Traffic Safety Administration, estimates show motor vehicle deaths jumped 15% between 2019 and 2021, two years when similar mileage was driven.  

Numerous factors go into what you pay for auto insurance, from the safety ratings of your vehicles to your driving history to the number of drivers insured. However, several macro trends are helping to push auto premiums upward in 2022: 

  • Inflation: The Consumer Price Index (CPI), which measures a change in overall price levels, is at a 40-year high. The June 2022 CPI showed a year-over-year increase of 9.1%. That’s up from the prior 40-year high of 8.6% in May. This means, on average, we are spending a lot more on the same goods and services.
  • Vehicle parts: That inflation rate impacts vehicle replacement parts, with those prices up closer to 10%. Historically, a 2 to 3% increase yearly is typical.
  • Repair costs: Supply chain issues, such as a shortage in car chips and labor market pressures, have driven up repair costs. Limited supplies and labor can lead to longer repairs, which means customers are in rental vehicles longer, which drives up the cost of claims.
  • Insurer profitability: According to industry analysis, auto insurance underwriting has been marginally profitable since 2018 and is inching back towards unprofitability for insurers. Additionally, changes in auto insurance premium rates have not kept pace with general inflation. 

If the current trends established before and during the pandemic continue, so will upward pressure on rates. 

Ways to Save Money on Auto Insurance

You can review your auto insurance coverage at renewal to ensure your insurance meets your needs. And there could be ways you can save money. 

  • Raise your deductibles: A higher deductible can lower your auto insurance premium. However, you need to have enough money in savings to pay the higher deductible, just in case.
  • Revisit your mileage: Most insurers offer discounts to people who drive less than the average number of miles per year. Are you working from home and driving less because of the pandemic? Might be worth discussing with your insurance advisor.
  • Reduce coverage on old cars:  If you own an old car, maintaining collision and/or comprehensive coverage may not be cost-effective. As a rule of thumb, experts say your car should be worth less than 10 times the insurance premium.
  • Bundle your coverage: Many insurers offer multi-policy discounts if you purchase two or more types of insurance from them. Be sure to ask if it is cheaper to bundle versus buying insurance separately from different insurers.

Talk to a trusted insurance advisor about what discounts you might qualify for, but remember that the lowest price may not meet your insurance needs.