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By Bialke Agency

Inflation and Why Insurance Companies are Forced to Increase Premiums

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

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.

Now is an ideal time to talk to your insurance company after considering inflationary factors that will likely drive up your monthly, quarterly, or annual payments.

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