Auto insurance is a crucial aspect of vehicle ownership and is designed to provide financial protection in the event of a collision, theft, or other covered accident. However, many drivers are facing an increase in their auto insurance premiums, leaving them wondering why.
You’re a careful driver — you’re accident-free — but your auto insurance rates keep going up. What gives? Why is your premium increasing?
In this article, we’ll explore the main reasons behind the rise in auto insurance premiums — and what drivers can do to manage costs.
Premium calculations are based on your risk profile coupled with the estimated cost of repairing or replacing your car. Inflation that raises the cost of parts or labor, or an increase in car thefts or accidents, can all influence these factors. You should know that every increase is reviewed and approved (or denied) by the Department of Insurance (DOI), the government agency responsible for regulating the industry. Also, your rates won’t be adjusted during the middle of your policy term, however, it may happen when your policy renews and you’ll be given several weeks advance notice so you can prepare and comparison shop if you wish.
Below, we’ll list the reasons for rate increases, expand upon the factors involved, and offer ways you can keep your premium from spiraling out of control.
Repairs and Replacements Cost More
The supply-chain shortages over the past three years of the pandemic are just one of the reasons auto repairs and parts cost more. When you factor in a labor shortage of trained technicians, the cost of vehicle repairs has increased by 14.2 percent increase in the last year.
These increases affect consumers and insurance companies alike. According to the Department of Consumer Affairs, Bureau of Automotive Repair (BAR), the demand for trained technicians outpaces supply five to one.
Advancements in car-manufacturing technology have also contributed to higher premiums. While these advancements have made cars safer and more convenient to drive, they’ve also made them more expensive to repair.
A car equipped with advanced safety features like automatic emergency braking and lane-departure warning systems, for example, can cost significantly more to repair than a conventional car. This increase in repair costs translates to higher insurance premiums.
Vehicle Shortages
The same supply-chain issues — including a global shortage of the microchips needed to make new cars (and a host of other things) — have resulted in fewer cars rolling off the assembly line.
In 2022, the average price of a new car rose 10.8 percent from the previous year, according to Kelly Blue Book. The new-car shortage makes used cars all the more sought after. And when any commodity is in short supply, we all know what happens to the price.
When someone’s vehicle is totaled, the insurance company pays the market value of that car which is now 11 percent higher than expected.
More Accidents
Another factor affecting insurance rates is driving behavior. More people are driving today than at any other time. More cars equal more accidents, which increases the number of claims. Also, the pandemic changed the driving habits of a lot of car owners.
While many drivers stayed home, those using the roadways began driving faster and more recklessly, which caused more accidents and increased the number of fatal crashes.
Even if you’re a safe driver, accidents caused by other drivers continue to rise with more severe injuries, according to the National Highway Transportation and Safety Administration (NHTSA). Liability insurance costs have increased as a result.
The rising cost of accident-related medical expenses insurance providers need to pay contributes hugely to premium increases.
Climate Change
While your property and homeowners insurance are on the front line when it comes to the ravaging effects of climate change, it also affects your car and the auto insurance business. The increase in severe weather caused by the dramatic changes to our climate means that, globally, we’re experiencing more extreme weather events. We’ve all seen on the news — if not in person — the devastation wrought by severe storms, floods, and hurricanes.
Typically, when a car is even partially exposed to floodwater, it’s considered a “write-off” as the engine air intake is usually damaged beyond repair. As a result, insurance providers must pay out more for the claim, driving up policyholders’ insurance costs. This also holds true for other types of physical damage to vehicles incurred during violent storms.
Other Factors
This is the part where you, as a vehicle owner, can control your insurance rates — to an extent. If you’re faced with a premium increase at your next renewal, take a look at your policy to see where you could perhaps shave some expense. Of course, you don’t want to skimp on coverage, but there may be areas you could reduce. For instance, consider:
- Removing comprehensive coverage if your car is older.
- Increasing your deductible, which will lower your premium.
- Switching from full payments to monthly payments, which may be easier on your budget.
- Practicing safe driving to help avoid accidents and keep your record clean
- Taking a defensive driving course, if available
You control other factors, too that may have caused your rates to go up. If you buy a more expensive car, for example, or move to an area that experiences more car thefts, your premium will likely increase.
As we’ve seen here, many factors contribute to the increase in auto insurance premiums.
It's important to note that lowering your auto insurance coverage may seem like a way to lower your premium in the short term, but in the event of an accident or theft, it could lead to you paying out of pocket for expenses not covered by your policy. You want to make sure you have adequate coverage that meets your needs, protects your assets, and provides peace of mind.
Our final recommendation is to regularly review and update your coverage to make sure it stays in line with any changes in your life or driving habits. This will allow you to keep on top of any changes in pricing and ensure your coverage continues to meet your needs.
By staying informed and making smart choices, you can keep your insurance premium under control and protect yourself and your vehicle.
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