Have you noticed the cost of your car insurance climbing in recent months? If so, you’re in good company. In the U.S., car insurance rates are rising by an average of 4.9%, according to S&P Global Market Intelligence, a financial and analytics corporation that tracks such matters.

This increase in rates can be chalked up to a host of economic factors and the market climate at large. That being said, you can still save on your insurance despite feeling the financial squeeze. 

How do inflation and interest rates affect insurance costs?

With inflation at a 40-year high per the U.S. Bureau of Labor Statistics, it’s no wonder how this bump in costs is being shouldered over to the consumer. Inflation and increasing interest rates means that the cost of supplies and labor are also more expensive. In turn, that means it costs insurers more to pay out claims. 

“With inflation hitting an astounding 9.1%, general cost increases have affected several components of car insurance from repairs to replacement costs, where insurance companies are paying out more to buy comparable cars when their customers’ cars are totaled,” says Loretta L. Worters, vice president of the Insurance Information Institute, or III, an insurance industry association. 

Why are insurance costs on the rise?

Let’s take a closer look at what’s driving the rise in insurance costs, which include disruptions to the supply chain, microchip shortages, a high cost of auto parts and staffing shortages at repair shops.

Supply chain disruptions

Russia’s invasion of the Ukraine, coupled with supply chain disruptions are continuing to drive inflation, Worters says: “From a property/casualty insurance perspective, these forces have a particularly strong impact on replacement costs – especially in the automotive sector.”

Chip shortages

Chip supplies were slim before the pandemic, but the shortage has been at a crisis since the global shutdown, according to Worters:  “Fewer available chips results in more expensive cars. And as the cost of cars rises, so does the cost to repair them if an accident occurs. Further, with the chip shortage, more people are keeping their old cars on the road longer, needing more repairs. The increased demand for car parts combined with supply chain issues, are leading to inflated car part costs.

Auto replacement costs

The III estimates that auto replacement costs climbed 12.50% from January 2021 to January 2022, Worters says: “The introduction of new automotive technology improved safety —think  crash avoidance sensors — and increased fuel efficiency, such as replacing steel with aluminum, have increased the cost of either repairing or replacing damaged vehicles.”

Staffing shortages at auto repair shops

Auto repair shops are feeling the labor shortage due to the Great Resignation. That means that labor is more expensive, which also drives up the cost of car repairs. 

“The challenge has also been difficult with premiums lagging behind the rate of inflation, while claims costs have increased,” Worters says.

More cars means more accidents on the road

“Along with gasoline price increases, some motorists may see an increase in auto insurance rates due to a rise in accident frequency, accident severity and replacement parts inflation,” Worters says. 

Guide to car insurance rates rising in 2022 – What to do when car insurance rates go up

How to save on car insurance despite increasing costs 

While you can’t control inflation or interest rates, you can shave off some dollars on your insurance premium.

“When looking at inflationary issues, you’re going to get hit from every direction – from buying a car, gas and the insurance for the car,” Worters says. “It’s a good idea when shopping for a vehicle to check with your insurer to see what the cost will be before you buy it.”

 To start, consider buying a car that’s less expensive, such as a used car.

Here are other ways to save on car insurance:

  • Think twice between leasing or financing a vehicle. You might also think twice before leasing a new car or taking out a loan on your new car: “You’ll need to pay for collision insurance as well as liability, which can significantly increase your premiums,” she says.  
  • Take a defensive driving course. You can also save by taking a defensive driving course, which can shave off anywhere from 5% to 20% off your car insurance. 
  • Pay upfront or sign up for autopay. Other discounts include paying your premium upfront or signing up for autopay. Some insurers will bump down your premium by 3% to 5%. 
  • Bundle your insurance. You can also save by bundling your insurance, such as with homeowners or renters insurance. 
  • Don’t forget to do this one thing. Be sure to compare rates by getting quotes from several insurers. This will make sure you land the most affordable insurance possible without skimping on your needs. 

Resources & Methodology:

Sources:

Bureau of Labor Statistics. “Consumer prices up 9.1% over the year ended June 2022, the largest increase in 40 years.” Accessed October 2022. 

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Jackie Lam
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Our Carinsurance.com team is made up of regular people with insurance policy needs, just like you. We just happen to know a little more about insurance than the average bear.