Inflation is the economic condition that stimulates a price uptick in commodities and services. But, like most sectors, any market shift also affects the insurance industry. Essentially, the purchasing power decreases every time inflation rises one percentage point. It’s why clients may notice a cost increase in their premiums.
For instance, the U.S. economy suffered from record-high inflation rates last year, pushing the numbers to almost double digits in June 2022.
Insurance companies do not simply pull numbers out of thin air when determining premium rates. Instead, they must consider multiple factors, such as the number of claims, inflation, and the overall cost to repair your vehicle, home, or business.
So, with inflationary prices, the insurer has to pay more for the same damage.
Factors Impacting Rising Insurance Premiums
- Vehicle prices went up nearly five percent in 2022. So, the average sale price for new cars increased by $2,297 compared to 2021.
- The cost of car replacement parts rose between 7% and 20% in 2022.
- As of December 2022, the Bureau of Labor Statistics reported that civilian workers’ wages and compensation costs increased by 1.0% across the board.
- According to the Centers for Diseases Control and Prevention, motor vehicle crashes claim about 38,000 lives annually.
- Minnesota’s total cost for traffic motor vehicle fatalities reached $627 million in 2018.
- Remember when the labor cost was only $50-$60 per hour? Now, the average rate for a mechanic skyrocketed to $75-$130 per hour.
- Comprehensive claims are rising. For example, replacing a stolen catalytic converter and repair is up by $3,000.
- Also, catalytic thefts rose 540% nationwide in 2022 compared to 2020.
- Car rental rates also surged nearly 50% from July 2019 to July 2022. The higher prices impact the overall cost of an auto claim, especially with lengthier repair times.
- Weather impact. If you feel that it’s getting windier in Minnesota, don’t worry. It’s not only your imagination. In fact, the National Weather Service reported that 30mph winds occurred every other day in Minnesota last year.
- Since 2001, Minnesota has recorded higher cases of severe and “devastating” rainstorms due to climate change.
- A broken supply chain also contributed to higher premium rates since the depleted workforce, higher fuel prices, and product demands are causing significant delays in receiving the parts, resulting in longer repair times.
Due to these factors, it’s hardly surprising that motorists now pay $2,014 on average for auto insurance yearly. The amount eats up nearly 3% of the average household income. Also, according to the same report, insurance premiums across the board increased by 13.7% in 2023.
What Can You Do?
There’s nothing you can do with inflation because supply and demand drive market conditions. However, you can at least do something about your premiums.
Consider the following steps to cut into your premium payments:
- Talk to your insurance agent to revisit your policy. You might be pleasantly surprised at how willing they are to find the ideal package based on your budget.
- You may also ask if you can bundle your auto and home insurance into one policy. In addition, buying from the same insurer is more convenient since you only have to consider one payment.
- If you know your way around cars, you may raise your deductible, which will reduce your premiums significantly.
- Be realistic. You may have a dream car, but also consider the insurance costs. For instance, a Jeep Grand Cherokee will cost you about $2,000 in premiums annually. However, you can save as much as $500 in insurance if you choose a compact SUV like a Honda CR-V or a Jeep Wrangler JL Sport.
- Consider dropping coverage on an older car if the vehicle cost is ten times less than your premium. Talk to your insurance agent about this.
- Ask for loyalty discounts. Most insurance companies are willing to reduce the premiums for their long-term clients.
In conclusion, insurance companies are forced to hike their premiums due to the higher labor costs for mechanics, replacement car parts, more comprehensive insurance claims, and the value chain that makes up the entire auto industry.
