The vehicle insurance industry in the United States is confronted with a variety of issues, including an increase in the number of severe weather occurrences, labor shortages, and inflation. According to a ValuePenguin analysis, premiums are likely to climb by 8.4%.1 According to the Insurance Information Institute, vehicle coverage prices trailed behind inflation in 2020 and 2021, culminating in hikes in 2022 and 2023.2
Three queries have been raised by policyholders:
What is behind the premium increases?
How can increases be balanced?
When will premiums begin to fall?
Major Cost Factors Affecting Auto Insurance Premiums
Let’s take a look at three significant concerns that are causing vehicle insurance rate rises in the United States.
Weather Extremes and Claim Frequency
Severe weather events are becoming more common, with 18 billion-dollar weather occurrences in 2022 and nine billion-dollar natural catastrophes so far in 2023.3 Major storms have already caused major damage across the United States this year. South Florida received a record rainfall of 25 inches in 24 hours in April, dubbed a “1,000-year event” by the National Weather Service4, resulting in urban floods and losses of more than $100 million.5 In the same month, 29 tornadoes struck the southern and central Plains in a single day, generating an estimated $1.9 billion in damage.6 Baseball-sized hail shattered glass out of homes and automobiles in Texas during a June thunderstorm.7
Comprehensive auto insurance coverage compensates for damage caused by natural catastrophes such as floods, hail, tornadoes, and wildfires, as well as other causes that do not involve a collision with another vehicle. As the frequency of severe weather occurrences rises, so are insurance payouts: whether or not a policyholder files a claim, everyone’s premium suffers.
Labor Scarcity
The labor shortage in the United States arose during the epidemic. While the US Chamber of Commerce forecasts that 4.5 million jobs will be added in 2022, a comparable pre-pandemic workforce will require three million more people.8
This workforce scarcity affects auto insurance costs. Consider the following scenario: a vehicle requires repairs following an automobile accident. Repairs would normally take a week, but a lack of mechanics will cause the claim to be delayed. This extension might result in the insurance company paying extra for the policyholder’s rental car. Multiply this situation by thousands of claims: a labor shortage raises rental coverages, raising claims costs and negatively impacting policyholder insurance rates.
Inflation in the Economy and Society
Economic inflation has an influence on many different sorts of enterprises, including the automobile sector. Motor vehicle maintenance prices have risen 23% in the last year, according to the Bureau of Labor Statistics, a rate of inflation nearly four times that of total price rises.9 According to industry analysts, auto shop expenses are rising owing to a scarcity of personnel and automotive parts. While inflation may be slowing, these prices continue to rise.10
Meanwhile, litigation expenses continue to rise, with social inflation — simply defined as the public’s attitude toward large business – playing a role. Policyholders who harbor negative attitudes against insurance firms may:
Claim: During instances of excessive social inflation, policyholders may make claims that they would have handled otherwise out of pocket.
Sue their insurance company: If a policyholder is unhappy with a claim reimbursement, they can sue their insurer, which can result in greater litigation expenses.
enormous settlements: When jurors have a negative attitude toward insurance companies, they may grant enormous (or “nuclear”) judgments, which can result in bigger payouts from insurers and an increased probability that another plaintiff will file a similar claim, hoping for the same sort of verdict.11
How to Avoid Rising Insurance Premiums
There are various options for lowering your vehicle insurance prices. If you currently have other insurance plans with the same provider, you may be able to save money on your auto insurance by combining them. According to the insurance comparison website InsuranceQuotes,12 the typical motorist saves roughly 16% on their insurance rates by combining their homeowner’s insurance with their auto insurance.
Calculating your annual mileage might also help you save money on your insurance rate. A “low mileage” discount may be available if you drive fewer than 7,000 to 10,000 miles per year. The typical individual who drives 10,000 miles per year spends 7% more than someone who drives 7,500 miles per year, according to Insure.com.13 If you work from home, you can designate your vehicle for “pleasure use” rather than commuting. Vehicles used for commuting are driven more often, putting them at higher danger. They are also more likely to be on the road during rush hour, when the danger of an accident rises.14
Another approach to save money is to pay your vehicle insurance payment in whole rather than in installments, as insurers typically impose costs for installments. According to vehicle insurance comparison site, paying in advance might save you up to 12%. 15 The Zebra
When Will Insurance Prices Fall?
Insurance is cyclical, and the issues that the car insurance industry is facing today will pass. According to Bill Madison, CEO of insurance at LexisNexis Risk Solutions, premiums may never return to “normal.”
“We believe that much of the claims severity increases that the industry has observed are likely here to stay, and rates are unlikely to drop to pre-pandemic levels,” Madison told Bankrate.16 “At the same time, we do anticipate that the hard insurance market will eventually soften, and rate increases will become more moderate over time.”
Bankrate’s senior financial analyst, Greg McBride, expressed similar concerns, stating, “Don’t bet on declining auto insurance premiums.” A slower rate of growth is perhaps the most we can hope for.”