The past couple of years have been tough on consumers’ wallets. Inflation has affected groceries, gas and lots of other everyday expenses — and auto insurance is no exception.
Prices for most goods and services have started to stabilize: Year-over-year inflation stood at 2.7% in November, a dramatic difference from the peak of more than 9% during the summer of 2022. But auto insurance costs are still busting budgets. Policies were close to 13% more expensive in November compared to a year earlier, according to the latest Consumer Price Index.
If inflation is cooling, why is auto insurance so expensive? There are a couple of key contributing factors
Auto insurers are playing catch-up
At inflation’s peak in 2022, high vehicle repair and medical costs, along with natural disaster losses, resulted in auto insurers spending more in claims than they earned through premiums, according to S&P Global.
The post-pandemic economic boom may have played a part, too. “In general, a strong economy typically means more people on the road, which does lead to higher accidents,” says Scott Shapiro, global insurance lead at KPMG, a tax, audit and advisory firm.
To make up the cash, auto insurers raised premiums. But even as inflation steadies, insurance companies may not be quite ready to stop increasing them. “It took several years to get to this situation, and it’s going to take time to bring it down to a level where rates are much more moderate,” says Mark Friedlander, director of corporate communications for the Insurance Information Institute.
Auto insurance isn’t getting cheaper, but yours can
If past trends are any indication, the average cost of insurance probably won’t decrease anytime soon. But, as a response to the ease in inflation we’re seeing today, prices may level off.
Also, competition for your business can influence insurers to bring down rates. So the best thing you can do when your auto insurance premiums are steep, is compare quotes to see if you can get a better deal.
“Take the time to shop,” Shapiro says. “Because the environment changes, your individual circumstances change, and there’s a lot of choice.”
Other ways to lower your car insurance premium
Comparing policies from a variety of auto insurers for similar coverage is the best way to make sure you are getting the best deal. Beyond that, here are some steps you can take to save on car insurance:
Take advantage of all the policy discounts you can.Sign up for paperless billing or pay your policy in full, rather than monthly.Bundle your auto insurance with other policies, like your home or renters insurance.If you’re a safe or low-mileage driver, get quotes for usage-based insurance.Consider raising your deductible if your car is older. While this will lower your premium, you will pay more out of pocket if you file a collision or comprehensive insurance claim.Work on building your credit if you’re in a state that allows pricing that way. (California, Hawaii and Massachusetts don’t allow insurers to use credit when determining car insurance rates.)
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Isabel Contreras writes for NerdWallet. Email: icontreras@nerdwallet.com. Twitter: @https://twitter.com/ContrerasNews.
The article Why car insurance prices are rising so much even though inflation is cooling originally appeared on NerdWallet.
