Car insurance is one of the most essential expenses for many drivers, but it can also be one of the most frustrating. According to the latest Consumer Price Index, the cost of auto insurance is about 19.1% higher than it was a year ago. A study released this summer by JD Power showed that 31% of all insurance companies have raised their rates over the last year. So, what are the reasons behind this spike and what can you do to save some money on your car insurance?
Inflation and Supply Chain Issues
One of the main factors driving up car insurance rates is inflation, which affects the prices of everything from gas to groceries. Inflation also impacts the costs of new and used cars, which have soared due to the global chip shortage and high demand. According to the Insurance Information Institute, the average new car price in August 2023 was $41,736, up 9.6% from a year ago. The average used car price was $26,666, up 24.4% from a year ago.
These higher car prices mean higher repair costs for insurance companies, which have to pay more for parts and labor. The chip shortage has also caused delays in getting parts, which means longer wait times for repairs and more rental car expenses for insurers. Additionally, some parts are more expensive and specialized, requiring more skilled workers and equipment to fix them.
Driving Behavior and Accidents
Another factor that affects car insurance rates is driving behavior and the number of accidents on the road. During the pandemic, many people drove less and stayed at home, which led to lower claims and lower rates for some drivers. However, as restrictions eased and people resumed their normal activities, traffic increased and so did accidents. According to the National Highway Traffic Safety Administration, there were 38,680 traffic fatalities in 2020, up 7.2% from 2019. In the first half of 2023, there were 19,100 traffic fatalities, down only 0.3% from the same period in 2020.
Experts say that some drivers have developed bad habits during the pandemic, such as speeding, distracted driving, and impaired driving. These behaviors increase the risk of severe and fatal crashes, which result in higher medical costs and legal fees for insurance companies. Moreover, some drivers may have let their coverage lapse or reduced their coverage during the pandemic, which means they may not have enough protection in case of an accident.
Car Theft and Crime
A third factor that influences car insurance rates is car theft and crime. According to the National Insurance Crime Bureau, vehicle theft is a multi-billion-dollar industry in the United States, with just over a million vehicles stolen last year. That number could rise this year, as the Council on Criminal Justice reported a 33.5% increase in car thefts during the first half of 2023 compared to last year.
Car thefts and carjackings are not only a loss for drivers, but also a cost for insurers, who have to pay out claims and replace stolen vehicles. Some drivers may also face higher deductibles or premiums if they live in areas with high crime rates or have vehicles that are more prone to theft. Furthermore, car thieves may also target specific parts of vehicles, such as catalytic converters, which are expensive to replace and can cause environmental damage.
Natural Disasters and Weather Events
A fourth factor that contributes to higher car insurance rates is natural disasters and weather events. The United States has experienced more frequent and intense hurricanes, tornadoes, hailstorms, wildfires, floods, and other calamities in recent years, which have damaged or destroyed millions of cars across the country. According to NOAA’s National Centers for Environmental Information, there were 22 weather and climate disasters that caused more than $1 billion each in damages in 2020, totaling $95 billion. In 2023, there have already been 18 such disasters as of September, totaling $104 billion.
Natural disasters and weather events not only affect drivers who live in affected areas, but also drivers who live elsewhere, as insurance companies spread the risk and cost among all their customers. Some drivers may also face higher deductibles or exclusions for certain types of damage or events, depending on their policy and location.
How to Save Money on Car Insurance
While car insurance rates are rising for many drivers in 2023, there are still some ways to save money on your coverage. Here are some tips:
- Shop around and compare quotes from different insurers at least once a year. You may find a better deal or a company that offers discounts or incentives for your situation.
- Bundle your policies with one insurer if possible. You may get a lower rate if you combine your car insurance with your home insurance or other types of insurance.
- Adjust your coverage and deductible according to your needs and budget. You may be able to lower your premium by raising your deductible or dropping some optional coverages that you don’t need or use. However, make sure you have enough coverage to protect yourself and your assets in case of an accident.
- Maintain a good driving record and credit score. Your driving history and credit score are two of the most important factors that insurers use to determine your rate. Avoid speeding, accidents, tickets, and claims as much as possible. Pay your bills on time and keep your credit utilization low.
- Take advantage of discounts and programs that are available to you. You may qualify for discounts based on your age, occupation, education, affiliation, vehicle features, safety features, driving habits, or loyalty. You may also enroll in programs that monitor your driving behavior or offer rewards for safe driving.