The cost of auto insurance is on the rise in a big way - and it’s not strictly due to inflation. According to a recent New York Times article, the cost of auto insurance was up about 15 percent year-over-year in March 2023. Compare that to the latest reading on overall inflation of about 5%, and it’s no surprise that there are other factors at play.
So, what exactly contributes to the cost of auto insurance? There are two main considerations:
- The number of claims filed in your area
- The average cost of a claim filed in your area
From climate change to the pandemic, many conditions are at play when it comes to an increasing number and cost of claims:
- Vehicles are more expensive than they used to be. According to Cox Automotive, the average cost of a new car in the US is now $48,008. This is largely due to the more advanced and expensive technology used in vehicles today. Electric vehicles specifically are 25% more expensive to insure than ICE (internal combustion engine) cars for this reason.
- Pandemic-era supply chain issues have led to more expensive parts. With supply low and demand high, automotive parts are harder to get and more costly than they used to be.
- Pandemic-era labor shortages cause delays in repairs and thus, an increase in the number of days a rental car is needed - increasing the overall cost of a claim.
- Climate change is causing more extreme weather events which put vehicles in danger of fire, flooding, or other related claims.
- More people are driving on the road post-pandemic which leads to more accidents and claims. Recent studies have also indicated a rise in road-rage and fatalities than there used to be.
And, if you’re hoping auto insurance rates have reached a peak, you can think again. ValuePenguin estimates that rates will increase by another 8.4% in 2023.
As a consumer, what can you do to combat these rising rates? It may come as a surprise, but switching insurance carriers may not always be the best answer. Learn more about strategies to save on your insurance premiums by reading our next blog post, “The Cost-Effective Choice: When Sticking with Your Current Auto Insurance Provider is a Smart Move.”