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When you shop for car insurance quotes to renew your policy, you’ll notice that auto insurance rates are at an all-time high. The costs feel very prohibitive, so squeezing them into your budget is a struggle.
Today, the prices of everything— from gas to groceries—are soaring. Unfortunately, the inflation of goods and services also jacks up insurance costs. This financial obligation, like many other things in the market, is under pressure due to disruptions and economic repercussions caused by the recent global pandemic and political crisis.
Initial reports share that insurers have hiked premiums by at least 6%. The primary reason for this is claims and costs to repair vehicles or other properties and treat physical injuries due to accidents have increased. When the prices of parts and services increase, insurance premiums also increase so that insurers will have enough financial reserves for claims. Understanding what’s fueling the car insurance price hike is vital as it may help you mitigate costs.
Reasons for the Insurance Rate Spike
The effects of the worldwide pandemic on the economy have impacted multiple industries, including the car market and auto insurance industry. This has resulted in very noticeable inflation of goods and services across the board. The insurance sector is severely affected by fuel price hikes and skyrocketing costs of basic commodities. Here are the reasons why insurance rates are increasing:
- General inflation: Today, inflation is around 7.5% on consumer goods. The high prices of the goods affect auto parts, which car insurance covers. With jacked-up prices for replacement costs, both auto parts and repairs have also increased. Insurance companies are left with no choice but to increase rates.
- Chip shortage: Semiconductor chips used in making systems for new vehicles have taken a hit. Severe weather disturbances where factories are, along with the lockdowns and social distancing measures during the pandemic, have created a supply chain disruption. This affects insurance rates as it inflates the cost of parts and vehicles.
- Dismal vehicle inventory: There’s low inventory today due to chip shortages and worldwide lockdowns. With low supply and a resurgence in demand since the world is bouncing back post-COVID, the prices of new and used cars have increased. This also includes higher prices for rentals and leases. Higher costs result in higher insurance premiums.
- Higher replacement value: Insurers now have to contend with replacement parts that are priced much higher. For example, insurers have to fork out more to find a comparable car replacement when a car becomes a total wreck in an accident.
- Labor shortage: Because of the pandemic, there’s a shift into other industries, especially those that permit remote work. As a result, the auto industry is suffering from a labor shortage. Technicians are scarce, so the cost of repairs has increased, upping insurance premiums since they pay for this costly repair work in case of an accident.
- Extra cleaning expenses: Some car repair shops have to increase costs due to COVID-19. There are now extra sanitation measures included to ascertain safety. Consequently, this raises the costs of a standard repair, and insurance companies foot this bill.
Handy Tips to Reduce Insurance Costs
Most likely, you’re one of many car owners who lament the rising insurance cost due to inflation. You may be wondering if there are ways you can mitigate these expenses. Although you cannot control inflation and insurance prices, you can still do something to alleviate the costs. Here are some tips to help you save on premiums:
- Comparison shop: Before signing with your insurer, shop around and get different quotes. Compare rates from different providers. Find discounts like multi-car or home-car insurance bundles. Research helps in ascertaining you’re not overpaying for these premiums.
- Ask for discounts: There’s no shame in asking for a deal in hard times. Perhaps you qualify for a senior discount or a good student discount. You can save money by asking. The worst that can happen is the insurer says no. But if the answer is yes, you save tons of money.
- Improve credit: Your credit score significantly impacts your car insurance. People with poor credit have higher premiums because they’re considered risky. In contrast, good credit lowers insurance rates because the likelihood of filing a claim is less. If you’ve been practicing good financial habits, check if your credit report has improved and use it as leverage to score lower insurance premiums.
- Remove extras: Reduce coverage if it’s too costly. Do a policy review to see if you can take out add-ons like 24/7 roadside assistance, car rental subsidy, or trip disbursement. If you don’t need them, take them out. If you also have an old vehicle, you can consider taking out comprehensive collision coverage since it may not be worthwhile to repair the car.
- Increase deductible: You can lower premiums by increasing deductible expenses. If you’ve got an emergency fund and can cover the initial costs before insurance kicks in, this may save you money in the long haul. Just practice safe driving habits to prevent any accidents.
- Telemetrics: You can use a pay-per-mile program if you don’t travel a lot. This charges you insurance rates based on the distance your car traveled. Alternatively, you can use a plug-in or an app to monitor driving habits like braking, cornering, and speeding. Good driving behavior will result in discounts.
- Pay the loan: If you still have a car loan, the lender requires a higher tier of insurance, usually collision and comprehensive coverage. Consider paying off the car, especially if you’re at the end of the loan. This could drop your premiums considerably.
Shop around for insurance quotes before you finalize coverage. Ask your insurer’s representative for discounts to help you save. You can customize your car insurance policy, so you’ll pay for what you truly need.