Factors Behind Rising Car Insurance Rates

Introduction

Car insurance rates have surged by over 17% in the past year due to inflation, supply shortages, weather severity, and increasing reinsurance rates. Despite these exorbitant increases, experts predict an additional 8.4% rise for the rest of 2023.[2] This marks one of the most substantial insurance increases in over a decade. The rise in costs can be attributed to the increasing prices of vehicles, higher repair expenses, more accidents, climate-related disasters, and escalating reinsurance expenses. While it may be challenging to lower rates, individuals can explore the availability of numerous discounts, consult with insurance agents, and ensure they have adequate coverage without compromising on quality. In this blog, we will explore the key factors driving the rising car insurance rates, understand the implications for policyholders, and provide insights on how individuals can navigate these challenges. Ideally, with some knowledge of these trends, mobile workforce employees and their overseers can better maneuver insurance matters as the conditions impacting prices continue to astound drivers across the country.

^{Note that this article is not intended to be insurance advice, and that if you are looking for specific policy guidance, you must consult an insurance agent.}

[1] Why are car insurance rates going up? – NerdWallet 

[2]  Car insurance rates are rising again. Here’s what to do about it. 

The Impact of Inflation and Supply Shortages

Like an elusive specter, inflation has taken hold of the global economy, disrupting consumer lifestyles and rapidly increasing the prices of goods and services. These issues are posing distinct and potentially irreversible problems for the automotive industry. As raw materials and manufacturing costs rise, vehicle prices have soared to unprecedented heights. Whether you are a casual driver or part of a mobile workforce required to drive for business purposes, you need some form of car insurance, and these developments are highly relevant to your relationship with the road.

Rising Vehicle Prices and their Effect on Insurance Rates

The surge in vehicle prices inevitably affects the calculation of insurance rates, as providers must adjust their premiums to reflect the increased value of their automobiles.[3] Each year, the already-fraught landscape of the insurance industry becomes a battleground for risk assessment, in which insurers grapple with the challenge of maintaining some kind of balance with their clients amid evolving market dynamics. 

Increased Repair Costs and Their Influence on Premiums

A significant consequence of escalating vehicle prices is the corresponding increase in repair costs. The intricate engineering of modern cars means that repairs are becoming increasingly complex and costly, exerting upward pressure on insurance premiums as insurers endeavor to cover the potential financial burden of repairs. Over the course of 2023, prices for the repair of cars, as well as specific automotive parts, have increased by 5.1%.[4]

[3] Car insurance rates are expected to rise 8.4% in 2023 — here’s how to save

[4]   Car Industry Inflation [2023] | CarInsuranceComparison.com 

Weather Severity and its Role in Rising Car Insurance Rates

Recently, the world has witnessed a rise in the frequency and severity of weather-related disasters. By unraveling this connection, we can better grasp policyholders’ and insurers’ mounting challenges in adapting to an increasingly volatile climate, in which cars are just as vulnerable as other property types.

Increase of Weather-Related Claims

An uptick in weather-related disasters has triggered an avalanche of insurance claims, inundating the industry with mounting costs. Hurricane Harvey and Hurricane Sandy, respectively, were useful case studies for insurance experts that continue to shape policies today. The increased intensity of the impact of weather severity has necessitated substantial payouts from insurance companies, eroding their profitability and prompting them to reassess their risk models. As a result, providers have gone on to change the definitions of damages related to storms and what kind of damage counts toward coverage, such that “commercial insurance claims are expected to comprise an outsized portion of overall covered losses from the storm, as flood – rather than wind.”[5] In turn, these recalibrations lead to adjustments in car insurance rates to account for the heightened probability of weather-related claims, further impacting policyholders.

[5] Hurricane Harvey Puts Pressure on Regional Insurers in Texas, Says A.M. Best 

The Financial Burden on Car Insurance Costs

The mounting financial burden resulting from climate-related claims directly influences the cost of car insurance premiums. Insurance providers strive to maintain financial stability while offering coverage to policyholders, necessitating the spread of the expenses across their customer base. As a result, individuals seeking car insurance must bear the brunt of this burden through higher premiums, reflecting the increased risk of weather-related damages. This is, no doubt, a burden beholden to the specific regions in which drivers find themselves – if an area is more prone to twisters, for example, this increases the likelihood of property damage, including but not limited to vehicular destruction. 

State Farm, for instance, has stopped accepting new applications in California for business and personal lines property, as well as casualty insurance; this decision came into effect on May 27, 2023. The company “made this decision due to historic increases in construction costs outpacing inflation, rapidly growing catastrophe exposure, and a challenging reinsurance market.” While the decision does not directly impact personal auto insurance, it certainly sets a precedent for how all forms of insurance could very well operate across the United States and the rest of the world in the coming years.[6] 

[6] State Farm General Insurance Company®: California New Business Update 

Increasing Frequency of Accidents

Factors Contributing to Increased Accidents

Multiple factors converge to fuel the rising frequency of accidents on our roads. Rapid urbanization, population growth, and congested traffic conditions are some of the primary culprits. Additionally, the proliferation of distractions caused by mobile devices increased distracted driving incidents. 

The pandemic has also played a role in excessive accidents. After a brief lockdown, people became less accustomed to driving. Empty roads may have led to people driving faster and less carefully in low traffic density, before the roads returned to normal capacity. 

Combining these factors creates an environment ripe for accidents, necessitating a critical examination of road safety measures. Higher accident rates indicate an elevated probability of claims, leading to an increase in premiums to offset the potential costs. Policyholders, therefore, are responsible for the consequences of this ripple effect through higher insurance expenses.

Navigating the Interplay of Risk and Premiums

The relationship between accident rates and car insurance premiums is a delicate interplay of risk assessment and financial viability. On the one hand, insurers must balance offering competitive policies that attract customers that are, nevertheless, priced accurately to account for the probability of claims. On the other hand, policyholders must carefully consider their risk profile and driving history and take proactive steps to mitigate risk through defensive driving practices and adherence to safety regulations. Certain technologies exist to benefit from defensive driving practices, with insurers and third parties offering rates based on driving telematics. 

Escalating Reinsurance Expenses

Understanding Reinsurance and its Impact on Insurance Rates

Reinsurance offers providers a means of managing risk exposure; it describes a scenario in which insurance companies transfer a portion of their risk to reinsurers, who, in turn, assume responsibility for potential claims. However, escalating reinsurance expenses have a direct impact on insurance rates. As reinsurers face mounting costs associated with increased claim payouts, they must adjust the premiums charged to insurance companies. This adjustment reflects the higher financial burden of reinsurance, ultimately leading to upward pressure on insurance rates. 

The Relationship Between Reinsurance Costs and Individual Premiums

The relationship between reinsurance costs and individual premiums is nuanced, influenced by various factors. Insurance companies meticulously evaluate their risk exposure and overall financial stability when determining the premiums charged to policyholders. As reinsurance costs rise, insurance companies may find it necessary to increase individual premiums to ensure the sustainability of their policies. Policyholders must, therefore, navigate the balance between adequate coverage and the affordability of their premiums.

Navigating Rising Car Insurance Rates

By examining available discounts and cost-saving options, consulting with insurance agents for personalized guidance, and ensuring adequate coverage without compromising quality, policyholders can optimize their insurance experience while managing their budgets effectively.

Exploring Available Discounts and Cost-Saving Options

Insurance providers often offer a range of discounts that can help policyholders reduce their premiums. These discounts can be based on factors such as safe driving records, vehicle safety features, bundling multiple policies, and maintaining a good credit score. Reviewing the available discounts and exploring cost-saving options specific to your circumstances can significantly reduce your insurance rates:

• Research Insurers: Begin by researching reputable insurance companies known for offering diverse and attractive discount packages. Seek insurers with a history of excellent customer service and a wide range of coverage options.

• Compare Quotes: Obtain quotes from multiple insurance providers to compare their rates and available discounts. Many insurers provide online quote tools for convenience.

• Evaluate Policy Coverage: While discounts are important, ensure that the insurance policy meets your specific coverage needs. A cheaper policy might not be the best if it compromises crucial coverage aspects.

• Bundle Policies: Inquire about potential discounts for bundling multiple insurance policies, such as auto and home insurance, with the same provider. Bundling often leads to cost savings.

• Maintain a Clean Driving Record: A pristine driving history is a key factor for many insurers when offering discounts. Safe driving over an extended period can lead to substantial savings.

• Consider Usage-Based Insurance: Some insurers offer usage-based programs, where they track your driving habits using mileage tracking apps and GPS devices. Safe and low-mileage drivers may earn discounts through this system.

• Explore Safety Features: If your car has advanced safety features, such as anti-lock brakes, airbags, or anti-theft devices, inquire about discounts that acknowledge these safety enhancements.

• Ask About Discounts for Affiliations: Certain organizations, employers, or professional memberships might entitle you to special discounts. 

• Inquire About Payment Options: Paying your premium in full or opting for automatic payments might unlock discounts from some insurance providers.

• Review Your Policy Annually: Insurance needs and discounts can change. Review your policy with your agent to ensure you take advantage of all available discounts.

• Seek Guidance from an Agent: An insurance agent can be a valuable resource in identifying potential discounts tailored to your specific circumstances. 

Personalized Guidance

Insurance agents possess valuable expertise and can provide personalized guidance tailored to your needs. Engaging in open and proactive communication with insurance agents allows you to discuss your coverage requirements, evaluate potential cost-saving strategies, and gain insights into policy options that align with your budget. Their expertise can help you make informed decisions, ensuring that your coverage adequately protects you without overburdening your finances.

Ensuring Adequate Coverage without Compromising Quality

While it is essential to manage insurance costs, it is equally crucial to maintain adequate coverage that offers comprehensive protection. Conduct a thorough assessment of your needs and evaluate the risks you face on the road. You can strike the right balance between coverage and affordability by understanding your specific requirements. Opting for a policy with lower coverage limits is appealing from a cost-saving perspective. Still, it is essential to ensure that you have adequate protection to handle potential accidents or liabilities.

Cardata and Trellis

If you’re a Cardata user, you can leverage our partnership with Trellis to find better insurance rates. Mileage reimbursement company, Cardata, and rising insurtech star, Trellis, have formed a new partnership to assist Cardata users in finding savings on auto insurance through Trellis’ Savvy platform. The collaboration aims to simplify insurance shopping and purchasing, benefiting employees using Cardata’s platform. Trellis’ embedded insurance solution offers additional benefits to companies serving employees who drive for work.

Read more here: Cardata and Trellis Rev Up a New Partnership 

Conclusion

Rising vehicle prices, weather, reinsurance, and increasing repair costs have contributed to the significant rise in insurance premiums. While finding lower rates may be challenging, individuals can explore available discounts, consult with insurance agents for better rates, while ensuring that they don’t compromise on adequate coverage. Policyholders can navigate these challenges and make well-informed decisions to protect their vehicles and finances by staying informed and proactive.

^{Disclaimer:Nothing in this blog post is legal, accounting, or insurance advice. Consult your lawyer, accountant, or insurance agent, and do not rely on the information contained herein for any business or personal financial or legal decision-making. While we strive to be as reliable as possible, we are neither lawyers nor accountants or agents. For several citations of IRS publications on which we base our blog content ideas, please always consult this article: https://www.cardata.co/blog/irs-rules-for-mileage-reimbursements. For Cardata’s terms of service, go here: https://www.cardata.co/terms.}