After a global pandemic with limited travel and surging gas prices, why are auto rates rising and higher than pre-pandemic? While a formula is used to calculate auto insurance rates, it is not the only factor impacting the total cost. Other factors, such as inflation and labor, can also increase the cost, but there are ways to limit how much you spend on car insurance premiums.
How are Auto rates Calculated?
When calculating auto rates, insurance companies consider the vehicle being insured, the driver’s age, driving habits, driving record (number of insurance claims), the location where the vehicle will be driven, and the amount of coverage requested.
In general, newer and more expensive vehicles will cost more to insure than older and cheaper ones. Drivers involved in accidents or who have had multiple traffic violations also pay higher auto insurance prices.
Insurance companies also consider the crime rate and traffic conditions where the vehicle will be driven.
Some surprising factors that are increasing your auto insurance rates may include:
Inflation is one of the major reasons why auto rates continue to increase. As the cost of living goes up, so do the prices of vehicles. The average new car price has risen by more than 17.2% in the last year, and experts expect this trend to continue.
Inflation also affects the cost of repairs and maintenance. As prices rise, so do the fees charged by mechanics and body shops for vehicle repair. If you have an older car that requires constant repairs, these fees can add up, costing hundreds or thousands of dollars. Auto rates are not immune to the impact of inflation, nor are auto repairs.
Supply Chain Disruptions
When supply chains are disrupted, the cost of goods also rises. Replacement parts that are a part of the supply chain increase in price because of supply chain disruptions, resulting in higher car insurance rates.
Insurers would have to pay more for replacement parts because of the disruption, so they pass on the cost to the car owners, resulting in a higher auto rate. Fortunately, as the economy recovers, the supply chain should return to normal, and auto rates should decrease.
Labor shortage also impacts auto rates because of a decline in production. With fewer vehicles being produced, new cars cost more, and as the cost of cars increases, so will the insurance used to cover them.
Because of the pandemic, factories had to be emptied, and production declined. Currently, workers are finding other employment opportunities, leading to a labor shortage in certain areas. One such area is automotive factories. As production declines, the price of new cars increases. Insurance companies factor this cost into auto rates and charge more based on the price of a new vehicle.
Is it Possible to Avoid This Increase?
Unfortunately, there is no way to avoid the effects of inflation and the global pandemic completely, but there are some things you can do to minimize the impact:
Shop Around for a New Policy
Insurance companies are constantly changing their rates, so comparing quotes from several companies is important before buying a policy.
Raise Your Deductible
Raising your deductible lowers your monthly premium, but it also means that you’ll have to pay more out of pocket if you do get into an accident. You can also switch to a user-based policy. Both these ideas benefit those who have switched to a remote or hybrid career and use their vehicles less.
Reduce the Amount of Coverage You Need
For example, if you have an older car, you may not need as much coverage as you would if you had a newer model. By carefully evaluating your needs, you can find ways to save on your car insurance without sacrificing the protection you need.
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Disclaimer: All content on this site is information of a general nature and does not address the circumstances of any particular entity or individual, nor is the information a substitute for professional financial advice and services.