- Rising prices for both new and used cars are having a downstream effect on insurance premiums, as providers are having to pay more when claims get filed.
- The increased cost of paying those more expensive claims is a "one-two punch" for insurers, and experts predict policyholders will see those increases spikes to their premiums this year.
- "Every kind of aspect of being a driver has been slammed by inflation," says Sarah Foster, economics writer at Bankrate.
If you need further confirmation that things are more expensive, this week's update on the consumer price index made it official: Prices in January were 7.5% higher than they were a year ago. That's a level not seen in 40 years, according to the Bureau of Labor Statistics. The CPI measures the cost of an array of consumer goods from utilities to fuel to groceries.
One of the categories that saw the biggest price jump was used cars: They were more than 40% more expensive than they were 12 months ago, according to BLS. Prices for new cars haven't jumped quite as high, but they're still 12% more expensive than a year ago.
Whether you're on the market for a new-to-you vehicle or not, one major cost all car owners share is also on the rise, says Sarah Foster, economics writer at Bankrate: your insurance premium.
"Auto insurance rates are a very under-looked area where inflation is hiding right now," Foster says, and, considering how much prices for other things associated with driving are increasing, she says it only makes sense that auto insurance premiums would follow suit.
"Not only are drivers paying more at the pump or spending more money on a car when they're in the market for it, but they're also spending way more on insuring it," Foster says. "Every kind of aspect of being a driver has been slammed by inflation."
"There weren't very many cars on the road because people were just hunkered down in their homes during the lockdown," Foster says, and, as a result, insurance companies adjusted their rates in drivers' favor. "That doesn't typically happen."
Those days are long gone.
As more people have gotten back on the road, claims are rolling in again and these accidents are generating more damage. These factors, along with inflation, have already pushed premiums higher and will likely continue doing so for the rest of 2022.
It's a "one-two punch" that's hitting companies hard, Foster says. "They're having to pay up their reserves to cover claims that are coming in."
Video by Jason Armesto
Motor vehicle insurance rose 4% in January from the same month in 2021, and it's likely to go up across the board as the year rolls on, experts say.
"Rates are already heading higher due to inflationary pressures, and the increases could keep coming," says Martin Ellingsworth, executive managing director of global insurance intelligence at J.D. Power. "At the same time, insurers will need to balance the pressures of not hiking policy rates too much nor pricing them too low."
Allstate alone has had 20 rate increases approved in 13 states since November 2021, according to Bankrate.
Data from insurance search engine The Zebra shows insurance premiums going up in three-quarters of U.S. states this year.
The majority of those price hikes are less than 10%, but states like Louisiana, Ohio, Rhode Island, Washington, and Wisconsin, are seeing double digit increases from 2021.
Rising rates "will increase the incentive for consumers to seek out better prices," Ellingsworth says, and while higher prices are never good consumers, there are things you can do to score the best deal on auto insurance despite the increase to premiums and today's high inflationary environment.
Here are some tips from the experts:
- Shop around. Look at your policy, research competitors, and shop around. "Drivers might not necessarily know right now how much their car insurance is going to increase this year," Foster says, so keep an eye out for your policy renewal, which will typically arrive 30 days before your new policy for the year begins. Once you have that number in hand, see what other deals you can score.
- Personalize your insurance even more. Your insurance policy likely already uses your personal details, from your driving history to the age of the car you drive, to calculate your rate. Ellingsworth predicts policies will get even more personal moving forward.
"Expect to see more of this in the months ahead, along with greater adoption of the means to verify driver risk factors," he says. For example, if you're cool with having a box in your car that reports your driving habits to the cloud in real time, it could benefit your rate.
- Look out for discounts. Even if you can't lower your premium, many insurance companies offer discounts, particularly if you have multiple policies with the same carrier. Consider "other avenues to save, like reducing how much you're paying for other policies like your homeowners or renters insurance," Foster says.
If you're still driving less than you were pre-pandemic, make sure you're enrolled in a low-mileage policy plan or for a safe-driver discount, she says.
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