The Rising Cost of Automotive Insurance and What You Can Do About It

Owning a vehicle is getting more expensive. Apart from the actual car payments, rising fuel costs, and toll fees, you also have to pay for insurance coverage. In most states, minimum third-party liability coverage is required by law. But according to USAA auto insurance reviews, most car owners also opt for more comprehensive insurance coverage to protect against accidents. After all, the standard liability coverage only protects the insured party from claims resulting from injuries to others or damages to other people’s properties.

Unfortunately, insurance prices have been steadily increasing, making it very prohibitive for people to access basic and full coverage. It has become a challenge to pay standard insurance premiums, especially for drivers who already pay higher than average. These drivers may have teen drivers, violations on record, or live in a highly-urbanized area with higher rates of accidents and crime. Learn more about why rates are increasing across the board for many drivers. And more importantly, find out ways how you can combat these insurance premium increases so you can manage your monthly budget effectively. 

Auto Insurance Overview in 2022

Unfortunately, the world is in a global recession due to several factors like the pandemic and war in certain territories. As a result, the overall cost of doing business has increased for most organizations, including insurance companies. This cost is factored into the computation of insurance premiums, so consumers see a rise in insurance costs.

However, you must also remember that several factors influence your premium. The kind of vehicle you drive, driving history, distance traveled, past claims (if applicable), age, gender, and residence affect your premiums. The specific increase you will see still hinges on your unique situation.

Reasons for Auto Insurance Increase

In general, insurers calculate car insurance rates on various factors, as noted above. For example, those who travel more and live in an urban area could have higher premiums because they’re more at risk of encountering an accident. Moreover, other general economic and societal factors increased the rates. Let’s take a look at them below: 

Inflation of Goods

The Consumer Price Index noted an 8.6% price hike in costs of goods compared to last year. Hence, the cost of buying and repairing a car today has also risen. Auto parts are at an all-time high, along with labor. A small accident could result in thousands of dollars in damages to delicate equipment that entail special repairs and services. Anything that raises the costs of repairs raises the insurance rates.

Increased Healthcare Costs

Along with the prices of goods, medical costs have also skyrocketed. This means if a driver and passenger are injured in a car accident, they incur medical expenses that are a lot higher than ever. Today, the cost of healthcare is higher compared to the previous years. And since insurance covers damage to property and injuries, there’s an insurance rate hike. Insurers must have enough funds to pay for any medical claims in case of an accident.

Supply Chain Disruptions

The recent global pandemic with its lockdowns forced several factories to close or slow down operations due to social distancing measures. On top of that, ice storms knocked down plants in the south. For a time, people were not going out, so demand decreased. Now that the world is going back to normal, people need vehicle parts, but there’s not enough supply. This has resulted in higher prices for car components and auto parts since they are harder to make and find. With this scenario, auto insurance companies have no choice but to jack up the rates so they can pay for the higher prices. 

Shortage of Workers

There is a shortage of skilled workers in various industries. The problematic car part supply chain goes hand-in-hand with the labor shortage. When there is a shortage of laborers in factories to make car parts, it raises the prices of the parts because the demand is higher than what’s available in the market. There are also issues of workers switching jobs. For instance, fewer people are in healthcare and vehicle repair, resulting in yet another pay increase for those left in the industry. To illustrate, if a mechanic repaired a bumper for a hundred dollars before, it could now cost $300 since the mechanic has to work longer days due to the diminished workforce. Since everything costs more, insurance companies have to increase their rates. It’s a snowball effect.

Change in Driving Patterns

Because of the pandemic, people hardly went out, forcing insurance companies to refund many policyholders. Today, people are returning to their pre-pandemic habits. However, the insurance companies do not have many reserves from previously paying claims because of canceled policies. Consequently, they need to increase rates to build up their claims reserves. 

Measures to Decrease Cost of Insurance

If you’re struggling to make car payments and pay for fuel, the rising costs of car insurance may also make you feel squeamish. Here’s what you can do to save money on your car insurance policy: 

  • Improve credit score: If you’ve been diligent in paying your bills, this could positively impact your credit score. A higher credit score could lower your insurance costs because it proves you’re fiscally responsible. 
  • Use a tracker: Ask your insurance company to track your mileage and driving habits. If you don’t drive a lot and you don’t engage in reckless driving, this could result in lower car insurance premiums. Pay for how much you use your car and get a discount on good driver behavior.
  • Reduce extras: You can take out extras that you don’t use, like roadside assistance, car rental, or trip disbursement. Evaluate what add-ons you can remove to lower your monthly auto insurance premiums. 
  • Shop around: It’s okay to compare rates from various car insurance companies. You could also bundle it up with your home insurance to get a discount. 
  • Increase deductible: If you’ve got an emergency fund and practice defensive driving, you could consider increasing the deductible expense. Doing so will allow you to save a lot of money per month. 

Car insurance is required by law, so you can’t escape getting one as a car owner. Make sure you factor this into your monthly budget as it’s a necessary expense. If you’re bent on lowering your insurance costs, one of the best things you can do is maintain a good driving record. This will also keep you safe on the road and prevent accidents.