The Dynamic Environment of Auto Insurance
It’s no secret that auto insurance premiums have been on the rise in recent years. In fact, according to data from the National Association of Insurance Commissioners, the average premium for a comprehensive policy has increased by more than 28% since 2011. But what is causing this steep hike in car insurance premiums? Will these auto insurance rate trends continue into 2023? And what can drivers do to reduce their premiums and keep costs down?
This article will explore those questions and help provide some much-needed answers.
What factors determine my auto insurance premium?
While there are hundreds of factors that auto insurance companies use to calculate your premium, below are a few of the most significant factors:
- Your driving history: Perhaps the most important factor in your premium calculation is your driving history. If you have a clean record with no accidents or traffic violations, you’ll likely pay much less than someone who has been in multiple accidents or has several speeding tickets.
- The type of vehicle you drive: The make, model, and year of your car also play a role in your premium. If you drive a car with safety features such as airbags, ABS brakes, lane departure warnings, and anti-theft devices, you may qualify for additional discounts on your premium. Rates are often driven by MSRP, horsepower, and vehicle usage.
- Your age, gender, and marital status: Another important factor is your demographic information. Generally speaking, a youthful driver has less experience and rates are sometimes higher than someone with more than five years of experience. Males might pay more than females. And if you’re married, you may also get a discount on your premium.
- Where you live: Your geographic location is considered when calculating your premium. If you live in an urban area with a high crime rate, you’ll likely pay more than someone who lives in a rural area with a lower crime rate.
- Your credit score: Believe it or not, your credit score can be a factor in your premium calculation. If you have a good insurance-based credit score, you’re seen as less of a risk and may qualify for a lower premium.
These are just a few of the many factors that auto insurance companies use to calculate your premium. But why do rates continue to increase even when drivers are doing everything right? We'll explore that in the next section, so keep reading!
Why does my auto premium continue to increase?
If you have a clean driving record, the trend of increased car insurance rates can be especially frustrating. However, there are a few reasons why your premium may continue to increase, even if most of them are entirely outside of your control.
- More people are on the roads: According to data from the Federal Highway Administration, the number of vehicle miles traveled in the U.S. in March 2021 increased by 19% compared to the same month in 2020. This is largely due to driving habits returning to pre-pandemic levels as people return to work across the country. Of course, this uptick in traffic can lead to more accident claims, which in turn can cause insurance rates to rise.
- The cost of repairs is increasing: According to CCC Information Services, the average cost of vehicle repairs in 2022 rose by more than 4% compared to 2021. This is due to a number of factors, including the fact that vehicles are now equipped with more on-board technology, which leads to more expensive parts and labor. And as the cost of repairs goes up, the cost of insurance claims do too.
- There's an increase in distracted drivers: With smartphones being the new normal, it’s no surprise that distracted driving is on the rise. And as more drivers take their eyes off the road, the likelihood of accidents increases. This trend is especially worrisome for insurance companies, which have to pay out more claims as a result. While there is little you can do to control other people's driving, there is plenty that you can do to reduce the distractions in your own vehicle, which we highlight in this recent post.
- Weather-related claims are on the rise: As extreme weather becomes more common due to climate change, weather-related accidents are increasing as well. According to the National Centers for Environmental Information, 2022 has already seen (as of October 11) 15 weather/ climate disaster events with losses of $1 billion or more. From hail damage to flooding, these types of severe weather-related claims are becoming increasingly common, which in turn causes rates to increase across the board.
- New and used car prices are at an all-time high: The cost of both new and used vehicles has been on the rise in recent years, driven by a number of factors, such as low-interest rates and increased demand. Pandemic triggered supply chain issues have led to a major shortage of automotive-grade chips, causing both new car prices (up 9.8%) and used car prices (up 26.4%) to skyrocket. And as the cost of vehicles goes up, the cost of insuring them goes up as well.
- Insurance companies are facing more fraudulent claims: Unfortunately, the pandemic has also led to an increase in insurance fraud. From fake accidents to exaggerated claims, there are many ways that scammers are taking advantage of the system. In fact, according to the National Insurance Crime Bureau, auto insurance fraud accounts for more than $30 billion in losses each year. And as fraud becomes more common, insurers are forced to raise their rates to make up for these losses.
What can I do to reduce my premium?
While the rising rates may seem daunting, remember that not all is lost. There are a number of things you can do to reduce your auto insurance premium, such as:
- Bundle your policies: Many insurers offer discounts for customers who bundle their auto insurance with other types of coverage, such as homeowners' or renters' insurance.
- Increase your deductible: If you're willing to pay more out of pocket in the event of an accident, you can often get a lower premium.
- Take advantage of discounts: Most carriers offer a variety of discounts, such as savings for good drivers, discounts for taking a driving class, enrolling in their carrier mobile app, or even your occupation.
- Pay your premium in full: Paying your premium in full rather than in installments can often help you save money
Will these trends continue into 2023?
There’s no crystal ball when it comes to car insurance rates, but we do know that the auto insurance trends we’ve seen in recent years are likely to continue into 2023. So if you’re looking to save on your premium, be sure to follow the tips we’ve outlined in this post and you’re sure to find a plan that fits your needs and budget.
And remember, the best way to keep your rates low is to be a safe driver, so be sure to check out our recent post on how to minimize risks while driving.
To learn more about the specific auto insurance premium trends in your area, reach out to a local Christensen Group representative. We leverage our decades of personal insurance expertise to provide you with all the auto insurance options and help guide you in the right direction.