The effects of inflation faced by businesses and consumers can also cause your car insurance premiums to increase when your policy renews. Like many other financial obligations, auto insurance is an expense that is under pressure due to the disruption caused by the pandemic and its economic effects.
According to industry and media reports, insurers could increase premiums by 6% to more than 10% this year. Understanding what drives price increases can help you find ways to save. Here are the reasons why rates are rising and the steps you can take to keep costs as low as possible.
Why are car insurance prices going up?
The effects of the COVID-19 pandemic on the economic systems that underpin common industries like auto insurance are causing noticeable inflation in the economy in general and in many economic sectors. Auto insurance rate inflation is due at least in part to the following seven factors:
—General inflationary pressures: With inflation hitting 7.5% on consumer goods, general cost increases are affecting several components of auto insurance, from repairs to replacement costs.
—Chip shortages: A perfect storm of industry pressure and COVID-19 related disruptions have caused a global shortage of semiconductor chips needed for new vehicles.
—Low vehicle inventory: Several factors contributed to the vehicle inventory crisis, including chip shortages. A low vehicle inventory inflates the cost of new cars, which in turn can affect insurance premiums. Low inventory also results in fewer and more expensive rental cars, which increases costs for insurance companies when paying for customer rentals.
—Replacement costs: For policies that stipulate comparable replacement costs, insurance companies pay more to buy comparable cars in this market when a car is totaled.
—Labour shortages: The automotive industry is experiencing a shortage of technicians, as many industries offer higher salaries to recruit and retain staff, which could drive up prices.
—Repair costs: Due to factors such as parts price inflation, supply chain issues and labor shortages, repair costs have increased.
—COVID-19 cleaning costs: Automotive repair shops may be required to engage in COVID-19 cleaning processes. They charge insurance companies for the time and cost of this process, which increases the cost of a typical repair job.
How to lower auto insurance rates.
Although you can’t control how insurers price their policies, there are steps you can take to avoid incurring higher costs. Here are ways to directly lower your auto insurance rates or smooth out the increases.
—Compare insurance quotes. Price comparison sites can help you make sure you’re not paying too much for insurance. Experian, for example, relies on technology from Gabi, a car insurance marketplace part of Experian, to compare quotes from more than 40 top providers in minutes.
—Reduce coverage. When the cost of auto insurance gets tight, you might consider reducing coverage. Review your policy and see if you have any add-ons you could do without, such as roadside assistance. If you have an older car that may not be worth the cost of repairs, you can weigh the removal of collision and comprehensive coverage costs against how much you’re willing to spend on potential repairs.
—Raise your deductible. One way to get a lower premium now is to upgrade to a higher auto insurance deductible later. Your deductible is the amount you pay after an incident before your insurance takes effect. Raising your deductible will lower your premium now, but you’ll pay more out of pocket if you have an incident on the road.
—Use driver tracking programs. Your insurance premiums are determined by the information the insurer collects to calculate the level of risk to insure you. If you provide them with more information about your specific driving habits by using an app or recording device in your vehicle, it could reduce your costs. With more information about how you drive, the insurance company can lower your rates by 25% or more.
—Check the discounts. Has your situation recently qualified you for a new discount such as a senior/retirement discount or student discount voucher? Check out the different discounts from your insurer and see where you can save.
—Improve your credit score. Your credit history can affect the price of your auto insurance if your insurance company considers your credit-based insurance score. These ratings are based on your credit reports, but consider the likelihood of you filing a claim and being able to raise or lower your rates accordingly. You can check your credit report and score for free to see where you stand and how it might affect your insurance-based credit score.
— Pay off your car loan. If your vehicle is still financed, your lien holder may require that you carry a higher level of insurance, such as comprehensive and collision damage waiver. If you’re nearing the end of your loan, pay it off and consider reducing or dropping your insurance coverage for something more manageable.
More ways to save money as prices rise.
As inflation rises in all sectors, you may have to swallow some cost increases. But there are places where you may be able to cut your expenses to balance out insurance and other price increases:
—Grocery: Where you shop and what you buy can have a big effect on your grocery bill. Consider switching to single-brand grocery stores and buying more plant-based meals to reduce the bill.
—Car loan: Reduce the costs of other car necessities by refinancing your loan if you can find a better interest rate. Refinancing can be done through your original lender or through a new lender.
—Entertainment: Even if you’ve already cut the cord, it might be time to take things a step further and temporarily reduce streaming services. Instead, consider free entertainment apps such as library card-enabled Hoopla or free live TV from Xumo, Pluto TV, or Tubi.
—Electricity bill: Pay attention to electricity consumption, especially in spaces where you don’t use lights. You may be able to opt for a time-of-use rate plan that reduces the cost of using electricity at less demanding times of the day.
Whether it’s rising car insurance prices or other areas of your life that are becoming more expensive, taking steps to help cut costs is a good first step towards reducing the effects of the crisis. ‘inflation.