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    Insurance | 3 min read

    The Impact of Inflation on Auto Insurance Rates

    One of the significant and sudden impacts of the pandemic was people suddenly started driving far less than before. Subsequently, there were fewer auto insurance claims nationally. In response, many auto carriers offered discounts and rebates on insurance premiums.

    As the world has gone back to a sense of “normalcy” and more drivers are back on the roads, accidents are back on the rise which means drivers nationwide are experiencing a much higher accident frequency than they had in the past two years. This rising trend has caused auto insurance rates to rise.

    Although rates are personalized for drivers based on several factors such as the driver's age, type of vehicle, driving history, coverage type, and geographic area, customers can still expect an increase in premiums. These rate changes stand to affect more than 62.5 million policyholders across the country.

    Even if you do not file a claim, an increase in others’ claims can also increase the rates for you and other drivers in your area. According to an article by Bankrate, nearly 450,000 policyholders in Illinois may face an almost 11% increase, and almost 500,000 Minnesota policyholders could see a 36% increase.

    Auto Repair Costs Are On the Rise

    Amid the pandemic manufacturer plant shutdowns, auto repair costs have grown dramatically over the last couple of years due to many of the same challenges affecting the auto manufacturing industry: supply chain shortages, production changes at major manufacturing plants, costs of materials, and labor costs.

    These challenges have caused auto repair and new car manufacturing industries to meet demand causing a steep increase in the value of used cars as well as rental car rates. With the delay in availability of replacement parts and delivery, insurers are also facing the cost of supplying rental cars for longer periods. 

    The Impact of Inflation on Auto Insurance Rates

    One of the biggest factors impacting car insurance premiums is inflation. Several insurance companies have increased premiums by around 7% to keep ahead of inflation, according to the Wall Street Journal. Between May 2021 and this June, the Consumer Price Index (CPI) rose 9.1%. This means, on average, we are spending 9.1% more than we were a year ago for the same goods and services.

    How to Prepare for Rising Auto Insurance Rates

    The bottom line is, auto premiums are primarily rising because of loss costs. Insurers must take in more than they pay out in claims and expenses to remain solvent. Drivers can expect to see increases through 2023 and possibly 2024.

    So, how do you prepare for such an expense? Fortunately, you do have some control over your auto insurance rates. Here are some ways you can minimize the effect of auto insurance rate increases:

    • Take advantage of multi-line discounts by bundling your auto and homeowners or renters insurance
    • Find out if you can get reduced rates through your employer, a trade group, or your alumni association.
    • Evaluate how increasing your deductible and/or lowering certain coverage limits impacts your premium.
    • Check whether your profession, credit, educational background, good driving record, or another trait qualifies you for additional discounts.
    • Ask your insurer if you are eligible for savings based on your projected yearly mileage.
    • Consider insurance rates when you shop for a car and select a car that is less costly to insure.
    • Check the prices of other insurers periodically and make a switch if you can save.
    • Insure only what makes sense for your car's value. For example, if your car is an older model, collision and comprehensive insurance may no longer make sense financially.

    While none of us wants to pay higher auto insurance premiums, it looks like that trend will be around for a while. Hopefully, the tips above help you minimize your yearly insurance increases!

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    John Hannah

    John Hannah is the AVP of Product Management for SWBC Insurance Partners. In his role, he reviews and analyzes P&C insurance product programs to meet and exceed financial goals. He assesses the risk and profitability of prospective and existing clients, to include underwriting, coverage and pricing recommendations.

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