Have you gotten a notice saying your car insurance rate is going up? Just about everything costs more money these days, so it should be no surprise that auto insurance premiums will likely increase for drivers nationwide. Allstate Protection auto insurance increased by 8.7%, on average, in the second quarter of 2022 in 30 states. State Farm was recently approved for rate hikes in 17 states and other insurance companies are following suit. Rates will likely continue to rise in 2023.
Largely, you can thank inflation and supply-chain disruptions for the hikes in premiums. However, market conditions aren’t the only culprits for rising rates. Reckless driving has increased the number of fatal car accidents, making roads more dangerous and insurance premiums more expensive for everyone. For that, you can thank smartphones.
See how you can get a low insurance rate despite surging prices.
When it comes to calculating car insurance premiums, driving records are insurance companies also look at the big picture — from how the overall market is performing to crime rates and driving statistics by state.
Inflation is increasing prices across the board. The Consumer Price Index increased by 8.5% in March 2022, and we’re seeing that hike reflected in the rising cost of replacement car parts and repair labor. Treating injuries after an accident and paying attorneys to sue for pain and suffering is becoming more expensive too. Insurance companies increase rates so they can afford to cover your losses, injuries and legal fees after an accident.
Global chip shortages are driving up the cost of new cars. The shortage ofsemi-conductor chips necessary for manufacturing newer car models has slowed production during a time when demand is still strong. When demand exceeds supply, prices go up.
According to Kelley Blue Book, a California-based automotive research company, the average cost of a new car soared to $48,301 in August 2021 — a record high after five months of increases and 10.8% higher than one year ago. Since auto insurance pays to replace your car if it is totaled in an accident, rates rise to keep pace with market prices.
Qualified automotive technicians are in short supply as well. Not all mechanics are qualified to work on newer models, which are essentially computers on wheels. Automotive engineers who know how to service newer models can command higher prices for their expertise, thereby raising insurance costs that cover repairs after an accident.
Motor vehicle-related fatalities are on the rise. The National Highway Traffic Safety Administration reportedapproximately 9,560 deaths from car accidents in the first quarter of 2022 — an all-time high for first-quarter fatalities since 2002. Higher numbers of fatal accidents lead to higher insurance premiums to cover claim payouts.
Catalytic converters are prime targets for theft. Reports of catalytic converter thefts jumped 325% nationwide between 2019 and 2020, with California being most affected. State Farm paid more than $33.7 million in claim payouts to customers between July 2020 and June 2021.
If your zip code has a history of auto theft and vandalism, your insurance company will likely increase your insurance premiums because your car’s catalytic converter is more likely to be targeted for theft.
Insurance rates will likely stay elevated until we see supply chains and consumer prices return to comfortable levels. Still, there are ways to save on car insurance. Specifically, consumers can drive more safely and shop for a cheaper policy. If credit scores are a rating factor in your state, improving your credit rating will lower your insurance rates too.
A clean driving record goes a long way in keeping car insurance premiums affordable. Each time you’re ticketed for a moving violation or get into a car accident your insurance company applies a surcharge to your policy premium — even if the other driver was at fault.
Avoiding these surcharges altogether is your best bet for paying the cheapest rates. You may even qualify for a discount if you avoid accidents and moving violations for three to five years. In California, drivers must be offered a 20% discount if their driving record holds one point or less over the past three consecutive years.
Parking in a garage and adding anti-theft devices on your car will bring down rates for city dwellers. If you park on the street, consider parking in a covered and secure lot instead and/or adding a security device to prevent car theft. Car insurance rates in urban areas are about 39% higher, according to USDA Economic Research Service, due to factors like theft and vandalism, so show your insurer that you’re proactive about keeping your car safe.
If you want to see your safe driving habits really pay off, consider enrolling in your insurer’s telematics programs. Insurers calculate discounts for customers that enroll in the program that tracks their driving data (usually via mobile app) and analyzes driving habits, like speeding and hard braking, mileage and at what times they drive. The safer the driver, the higher the discount.
Below are telematics programs offered by large national insurance carriers:
- Allstate Drivewise
- KnowYourDrive by American Family
- Farmers Signal
- Liberty Mutual RightTrack
- MercuryGO by Mercury Insurance
- State Farm Drive Safe & Save
- Travelers IntelliDrive
Shopping around is the best way to ensure you’re paying the cheapest rates available. Different insurance companies have different underwriting policies, and certain rating factors carry more weight than others. One insurer may offer you a cheaper rate than another – and for the same coverage.
Calling insurance companies one by one for a quote can be a time-consuming task. Fortunately, insurance marketplaces, like SmartFinancial, let you compare quotes from multiple insurers by completing one quick questionnaire.
Market trends are always shifting, so car insurance rates may go down in the future, especially based on geography: If claims are declining in your state, expect insurers to cut rates. On the other hand, a spike in claims will likely lead to higher premiums for everyone. Also, as inflation eases and other market factors stabilize, car insurance rates may go down across the board, fingers crossed.