Car insurance rates are going up across much of the country. This is due to inflation driving the cost of cars and repairs and increasing accidents and claims. As insurers pay more to deal with claims, they pass that increase to their customers.
In the spring of 2023, CarInsurance.com surveyed drivers across the nation. The survey found that 57% of drivers’ car insurance rates increased during the previous 12 months. Of those drivers, 43% said they believe inflation is the reason for the increase.
Here’s a closer look at the reasons car insurance rates are rising.
Inflation
The all-items Consumer Price Index increased 5% from March 2022 to March 2023 before seasonal adjustment, according to the U.S. Department of Labor. The average transaction prices of car sales in March 2023 are 30% higher than they were in March 2020, according to Kelley Blue Book.
“The latest transaction data from March reveals new-vehicle prices continued a downward trend through the first quarter of 2023,” says Rebecca Rydzewski, research manager of economic and industry insights for Cox Automotive, the parent to Kelley Blue Book. “Both luxury and non-luxury prices were down month over month. We’ve been anticipating transaction price declines as inventory has steadily improved and choice has expanded. More vehicles on dealer lots – and on their competitors’ lots – means dealers simply don’t have the pricing power they did six months ago.”
When vehicle costs go up, insurance will not be far behind. Insurers must cover the cost to repair or replace a car, and if their costs increase dramatically, they will pass that cost on to policyholders.
Pricey repairs and parts
The industry has struggled with a worldwide microchip shortage, and car parts costs have risen. Higher prices for parts push up the cost of repairs for insurance companies. These additional costs are passed to policyholders via rate increases.
“The high price of high-tech in cars was already affecting repair costs, but these current extreme marketplace conditions have pushed insurers to increase premiums as they also try to keep up with spiking crashes and catastrophic events. This is also complicated by a shortage of rental cars and longer time in a rental after a crash due to lengthier repair and replacement times,” says Carole Walker, executive director of the Rocky Mountain Insurance Information Association.
Repair delays also mean that insurers are paying for rental cars for more extended periods while policyholders wait for their vehicles to be repaired, costs that will eventually result in higher premiums.
Labor shortages
In addition to supply chain issues, labor shortages make finding skilled workers to repair vehicles more challenging. When the pandemic first hit, auto dealers and repair shops laid-off workers, some of which never returned to the industry after finding new jobs elsewhere.
Furthermore, luxury and high-end vehicles require specialized repairs completed by mechanics with specific levels of training.
Learn more about impact of interest rates and inflation on your car insurance costs
How often do rates go up?
Most car insurance policies are in force for a year and must be renewed. Once your renewal date comes up, there is a good chance your rates will change.
When your policy expires, your insurance company re-evaluates your risk factors and other factors impacting their business cost. If accidents, car thefts and claims have gone up in your area, it could result in a premium increase.
And as inflation pushes up the cost to repair or replace vehicles, insurers will pass those costs on to their customers.
But rates don’t go up for everyone. Because insurance rates consider personal risk factors such as a good driving record and a vehicle loaded with advanced safety features, your rates may stay the same or decline even if your car insurance company is raising overall rates.
