Auto Insurance Rates Are Increasing in 2022. Heres How to Prepare | Bankrate

October 22, 2022

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Like almost every purchase consumers make right now, the average cost of car insurance will likely increase for many drivers throughout 2022. Nationwide, car insurance rates are rising by an average of 4.9 percent, based on approved rate filing data from s& p global market intelligence. These rate changes will affect more than 62.5 million policyholders across the country. For policyholders in some states and with certain auto insurers, rate increases could be much steeper. Geico is raising rates in seven states in June alone, and the rate hikes will also go into effect on policy renewals in mid-August. Nearly half of those increases are happening in Virginia. state farm also received approval for more rate increases, 17 in all, with increases coming soon in kentucky, north carolina and south carolina. These are far from the only companies raising rates; In general, most drivers will pay more for car insurance this year.

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Because auto insurance is a mandatory expense for vehicle owners in most states, premium increases can be surprising and financially challenging, especially for drivers who already pay rates higher than average because they insure teens, have accidents, or have tickets on their records. , or live in an area with a high cost of living. bankrate explains why rates are likely to increase for many drivers, shows you how to prepare for a potential rate increase, and presents strategies you can use to help offset these increases.

Reading: Why are car insurance premiums going up

Are auto insurance rates higher in 2022?

according to steve ellis, associate vice president and claims field manager,

“the overall cost of doing business is rising for virtually every company in the us. USA, including insurance companies. And because the ‘cost of doing business’ is part of the premium calculation, consumers can generally expect higher premiums in 2022.”

A number of economic and social influences are behind these potential rate increases, including inflation, supply chain disruptions, and changes in driving habits.

however, keep in mind that rates are highly personalized. Your premium depends on your individual qualifying factors, such as the type of vehicle you drive, your driving and claims history, and the types and levels of coverage you choose. Mark Friedlander, Director of Corporate Communications for the Insurance Information Institute (Triple-I), notes that “Even if you don’t file a claim, an increase in the volume or cost of other drivers’ claims can increase your insurance rates. automobiles for all consumers in your city or state.” While we predict auto insurance rates will generally increase in 2022, the amount of increase you see (if any) will depend on your particular situation.

why are auto insurance rates rising?

Auto insurance rates are calculated based on a number of underlying factors. Individually, your age (in all states except Hawaii and Massachusetts), gender (in most states), driving record, vehicle type, and coverage options affect your premium. In addition, broader factors also affect rates, such as whether states pass revised insurance laws, the likelihood of claims occurring in certain areas, or whether vehicle repair costs increase.

inflation

Perhaps the biggest factor driving auto insurance premiums to rise in 2022 is the same thing that’s driving up costs across the board: inflation. Between June 2021 and June 2022, the consumer price index (CPI) rose 9.1 percent. this means that, on average, we are spending 9.1 percent more than a year ago on the same goods and services. While auto insurance certainly isn’t the most drastic increase (fuel, energy staples, and airfare rank highest), the increase still has the potential to further deplete consumers’ wallets.

Inflation hit the new and used vehicle markets in 2021 and while these numbers have started to level off, they are nowhere near the level they were before our current inflation situation. the price of new cars and trucks increased by 11.4 percent between June 2021 and June 2022, while the used car and truck market saw an increase of 7.1 percent. Vehicles are also much more complex than they used to be, increasing the total cost of ownership. even small accidents can cause hundreds or thousands of dollars worth of damage to delicate electronic devices that require specialized repairs.

Vehicle costs aren’t the only thing affected by inflation. the cost of medical care is also increasing. the centers of medicare & Medicaid Services reports that health care spending increased 9.7 percent in 2020, the most recent year with available data. This means that when someone is injured in a car accident, the resulting medical costs are higher than in previous years.

Because auto insurance is designed to pay for costs after an accident, including property damage and medical costs, anything that increases these costs is likely to increase your rates. Insurers need to make sure they have enough funds to pay claims, so when inflation rises, auto insurance rates take a hit.

It may be tempting to reduce your coverage to save money, but insurance professionals advise against this strategy. Auto insurance is designed to protect your finances after an accident, and reducing your coverage could leave you with higher out-of-pocket bills. In an inflationary economy where almost everything costs more, the right auto insurance could help you keep more of your hard-earned money if you make a claim.

supply chain disruptions

Recent years have created a perfect storm to disrupt supply chains. Covid-19 shutdowns caused a decrease in demand in certain industries in 2020. With fewer people on the road and cars generally being used less, there has been a decrease in the need for vehicle parts. then an ice storm in february 2021 destroyed plants and factories across the south, the suez canal was blocked for six days in march 2021 and people began to return to a more normal level of driving, causing a increased demand but decreased supply. the automotive industry has been one of the most affected sectors. “Parts are more expensive, labor is more expensive, and overall repair costs are more expensive,” says ellis.

Perhaps the most obvious of these vehicle-related supply chain disruptions was the difficulty in obtaining semiconductors. Semiconductors, often called “chips,” are used in a wide range of vehicle applications, including driver assistance systems, entertainment systems, and electronic mechanisms. In December 2021, more than 50 business leaders, including executives from American Honda Company, Ford Motor Company, General Motors, and Toyota Motor North America, sent a letter to Congress urging governing bodies to encourage the United States. to create their own methods of research, design and production of semiconductors, to increase the supply of semiconductors and the jobs available.

labour shortage

Along with supply chain issues making parts harder to find, labor shortages have also made skilled workers harder to find. The Bureau of Labor Statistics reports unemployment at 3.6 percent as of June 2022, almost back to the pre-pandemic level of 3.5 percent. however, many companies still struggle to find workers. the “great resignation” has pushed workers to reconsider their career paths, with many labor shortages caused not by unemployment but by workers changing jobs.

fewer workers may contribute to rising insurance costs. When fewer people perform a given job, including auto repair and health care jobs, pay rates often increase as an incentive. For example, maybe a mechanic used to fix bumpers for $100. now, that same mechanic works more days and takes less time off to compensate for a reduced workforce. to compensate, the mechanic now charges $300 to cover the same repair. Because it costs more to repair, insurance companies may increase rates to prepare for higher claims expenses.

change driving habits

When we dug in at the start of the covid-19 pandemic in early 2020, the country experienced an unprecedented drop in driving levels. many households stopped traveling to work, school, and activities. the streets were quieter and accidents were fewer. as a result, many insurance companies reimbursed some premiums to policyholders.

however, friedlander points out that

“In 2021, we saw a return to pre-pandemic driving patterns, leading to a significant increase in auto insurance claims and accident severity. In fact, the National Highway Traffic Safety Administration reported an 18.4% increase in fatal crashes during the first six months of 2021 compared to the first six months of 2020, the highest percentage increase on record.”

This pendulum of driving habits may mean insurance companies need to rebuild their claims reserves (the money set aside and set aside to pay for losses), which could mean higher premiums.

Are all auto insurance policies affected?

The premium increases you see on your own policy will depend on several factors, including the state you live in, your driving record, and the type of vehicle you own. not all companies are raising rates in all states. For example, USAA is cutting its rates by an average of about 1 percent for just over 100,000 policyholders in Massachusetts, according to S&P data, and about 47,000 Tennessee policyholders nationwide could see a modest decrease of 0.4 percent. Progressive was approved for nine rate reductions, reducing total premiums for policyholders by more than $13 million. however, one of the most important factors when considering rate increases is your level of coverage.

Rate increases can affect your policy regardless of coverage types and levels, but each factor affects your premium differently. For example, factors that increase vehicle costs, such as inflation and supply chain issues, are likely to increase the cost of your property damage liability and collision coverage because these types of coverage are They take care of paying for vehicle damage. however, increased medical costs could affect the cost of your bodily injury liability coverage and medical payments or personal injury protection (pip) coverage. each part of an auto policy is priced separately and therefore is affected by different impacts from rate increases.

Minimum coverage policies only include the types and levels of coverage required by your state. Because these coverage limits offer very little financial protection, they generally cost less than a policy with higher limits or full coverage. this means that rate increases may not seem as drastic on minimum coverage policies compared to policyholders with full coverage policies or higher limits.

Is it possible to avoid rising insurance costs?

Preparing for a rate increase can seem stressful, but knowing your car premium could go up can help you prepare and act quickly.

Review your current policy: The first step in preparing for a premium change is to understand your current insurance policy. Reviewing your policy and knowing your coverage types, limits, discounts, and premiums can help you learn about your policy. If you’re not sure how to look at your policy, you may want to talk to an agent. Keep an eye on your policy effective dates and see if your next renewal is available. if so, check that policy’s premium to see how your rate will be affected in 2022.
Shopping from a new provider: Friedlander says that “shopping around is essential to getting the best cost for the amount of coverage that fits your needs.” If you get your policy renewed and see that your premium has increased, you may want to contact your auto insurance company first to see if they can adjust your policy or add additional discounts to lower rates. For example, if you still drive less in 2022 than in previous years, could you get an annual mileage discount? If you can’t offset your increased premium, you may want to shop around. While most auto insurance companies sell the same types of coverage, each company also has its own underwriting rules, discounts, scoring algorithm, and policy features. getting quotes from some providers can help you find a lower rate and a policy that fits your needs. You can even get an early bird discount if you switch before your next renewal.
Take advantage of discounts: Discounts can be one of the easiest ways to lower your premium. reviewing your current discounts may help you identify areas where you could save. If you’re looking for new coverage, you can search for a company that has various discounts that may be available to you.
Check your other policies: Don’t forget about any other insurance policies you may have. Bundling your major policies, like home and auto, with one company could help you save money on both. Even if you can’t offset your auto insurance increase, you may be able to find savings on your homeowners insurance or renters insurance policy. Reviewing your entire insurance portfolio is a good way to make sure you’re properly insured but aren’t overpaying for coverage.

will car insurance prices go down again?

could. Auto insurance rates rarely, if ever, stay the same from year to year. while we expect rates to rise broadly in 2022, premiums may fall again in the future as inflation returns to lower levels and supply chain issues are resolved.

Your individual premium is based on your personal qualifying factors, so the degree to which you’ll be affected by the 2022 rate increases will vary. for example, you may see a rate decrease even though overall average rates increase. Your geographic location may have had a reduction in car accidents in the last year, resulting in fewer claims, or maybe an at-fault or ticket accident you had in the past is old enough that you’re no longer collecting a surcharge on your policy, resulting in a premium reduction. Talking to an agent or company representative about your unique insurance circumstances is probably the best way to understand your policy price.

If your rate increases substantially, insurance experts and financial advisors agree that keeping your auto insurance policy is still the best course of action. You may be able to work with an agent to develop a strategy to lower your premium to a more acceptable level, but canceling your policy entirely could put you at risk of high out-of-pocket costs in the event of an accident. Being aware of your coverage needs and understanding your policy can help ensure you have the right financial protection for your lifestyle and budget.